Question

Diltex Farm Supply is located in a small town in the rural west. Data regarding the store's operations follow:
· Sales are budgeted at $220,000 for November, $200,000 for December, and $210,000 for January.
· Collections are expected to be 70% in the month of sale, 27% in the month following the sale, and 3% uncollectible.
· The cost of goods sold is 65% of sales.
· The company desires to have an ending merchandise inventory at the end of each month equal to 50% of the next month's cost of goods sold. Payment for merchandise is made in the month following the purchase.
· Other monthly expenses to be paid in cash are $22,500.
· Monthly depreciation is $19,000.
· Ignore taxes.

40. Expected cash collections in December are: A. $59,400     B. $140,000     C. $199,400    D. $200,000

41. The cost of December merchandise purchases would be: A. $133,250   B. $68,250   C. $130,000 D. $143,000

42. December cash disbursements for merchandise purchases would be: A. $136,500    B. $68,250 C. $133,250 D. $130,000

43. The difference between cash receipts and cash disbursements for December would be: A. $17,900   B. $22,500   C. $40,400    D. $62,900

44. The net income for December would be: A. $40,400   B. $22,500   C. $47,500    D. $28,500

45. The cash balance at the end of December would be: A. $116,900   B. $16,000   C. $100,900    D. $56,400

46. The accounts receivable balance, net of uncollectible accounts, at the end of December would be: A. $82,000
B. $113,400   C. $60,000    D. $54,000

47. Accounts payable at the end of December would be: A. $65,000 B. $68,250   C. $130,000   D. $133,250

48. Retained earnings at the end of December would be: A. $132,500 B. $155,000 C. $196,500    D. $183,900

Answer 1

1) Expected cash collections in December: $199400

Working:

November credit sales collected in December (220,000 * 27%)	59,400
December credit sales collected in December (200,000 * 70%)	140,000
Total cash collections in December	199,400

2) Cost of December merchandise purchases would be: $133,250

Working:

	November	December	January
Sales	220,000	200,000	210,000
Budgeted COGS (65% of sales)	143,000	130,000	136,500
Add: Desired ending merchandise inventory (50% of next month's COGS)	65,000	68,250
Total needs	208,000	198,250
Less: Beginning merchandise inventory	71,500	65,000
Required purchases	136,500	133,250
	136,500	133,250

3) December cash disbursements for merchandise purchase: $136,500

Working:

	November	December	January
Sales	220,000	200,000	210,000
Budgeted COGS (65% of sales)	143,000	130,000	136,500
Add: Desired ending merchandise inventory (50% of next month's COGS)	65,000	68,250
Total needs	208,000	198,250
Less: Beginning merchandise inventory	71,500	65,000
Required purchases	136,500	133,250
	136,500	133,250

December cash disbursements for merchandise would equal the November purchases of $136,500

4) Difference between cash receipts and cash disbursements for December: $40,400

Working:

Cash disbursement for merchandise	136,500
Other monthly expense paid in cash	22,500
Total cash disbursement	159,000
Cash receipts	199,400
Less: Cash disbursement	159,000
Difference	40,400

5) Net income for December: $22,500

Working:

Sales (minus bad debts of 3% of 200,000)	194,000
COGS	130,000
Gross margin	64,000
Other expense	22,500
Depreciation	19,000
Net income	22,500

As per policy we have to answer first four questions, I have answered more than it