Question

Goldberg Company is a retail sporting goods store that uses an accrual accounting system. Facts regarding its operations follow: Sales are budgeted at $190,000 for December and $160,000 for January, terms 1/eom, n/60 Collections are expected to be 50% in the month of sale and 48% in the month following the sale. Two percent of sales are expected to be uncollectible and recorded in an allowance account at the end of the month of sale. Bad debts expense is included as part of operating expenses. Gross margin is 30% of gross sales. All accounts receivable are from credit sales. Bad debts are written off against the allowance account at the end of the month following the month of sale. Goldberg desires to have 80% of the merchandise for the following month's sales on hand at the end of each month. Payment for merchandise is made in the month following the month of purchase. Other monthly operating expenses to be paid in cash total $15,200. Annual depreciation is $144,000, one-twelfth of which is reflected as part of monthly operating expenses. Goldberg Company's statement of financial position at the close of business on November 30 follows: GOLDBERG COMPANY Statement of Financial Position November 30, 2019 Assets 14,000 Cash Accounts receivable (net of $4,000 allowance for doubtful accounts) Inventory 48,000 106,400 Property, plant, and equipment (net of $540,000 accumulated depreciation) assets 920,000 $1,088,400 Total Liabilities and Stockholders' Equity Accounts payable 134,000 Common stock 800,000 154,400 $1,088,400 Retained earnings Total liabilities and equity

Answer 1

Answer to Requirement 1:
Budgeted Cash Collections for December = Accounts Receivable, Net + (December Sales * 50%)
Budgeted Cash Collections for December = $48,000 + ($190,000 * 50%)
Budgeted Cash Collections for December = $48,000 + $95,000
Budgeted Cash Collections for December = $143,000

Answer to Requirement 2:
Book Value of Accounts Receivable, December 31 = (December Sales * 50%) - (December Sales * 2%)
Book Value of Accounts Receivable, December 31 = ($190,000 * 50%) – ($190,000 * 2%)
Book Value of Accounts Receivable, December 31 = $95,000 - $3,800
Book Value of Accounts Receivable, December 31 = $91,200

Answer to Requirement 3:
Income / (Loss) before Income Taxes = Gross Margin – Operating Expenses including Depreciation
Gross Margin = $190,000 * 30%
Gross Margin = $57,000

Depreciation per month = $144,000 / 12
Depreciation per month = $12,000

Income / (Loss) before Income Taxes = $57,000 - $15,200 - $12,000
Income before Income Taxes = $29,800

Answer to Requirement 4:
Projected Balance in Inventory, December 31 = January Sales * Costs * 80%
Projected Balance in Inventory, December 31 = $160,000 * 70% * 80%
Projected Balance in Inventory, December 31 = $89,600

Answer to Requirement 5:
Budgeted Purchases for December = December Sales + Desired Ending Inventory – Beginning Inventory
Budgeted Purchases for December = $190,000 + $89,600 - $106,400
Budgeted Purchases for December = $173,200

Answer to Requirement 6:
Projected balance in Accounts Payable, December 31 = Budgeted Purchases for December
Projected balance in Accounts Payable, December 31 = $173,200