Question

Handy Hardware is a retail hardware store. Information about the store's operations follows. · November 20x1 sales amounted to $470,000. · Sales are budgeted at $510,000 for December 20x1 and $470,000 for January 20x2. • Collections are expected to be 70 percent in the month of sale and 28 percent in the month following the sale. Two percent of sales are expected to be uncollectible. Bad debts expense is recognized monthly. • The store's gross margin is 25 percent of its sales revenue. • A total of 70 percent of the merchandise for resale is purchased in the month prior to the month of sale, and 30 percent is purchased in the month of sale. Payment for merchandise is made in the month following the purchase. • Other monthly expenses paid in cash amount to $45,900. • Annual depreciation is $453,000.

Answer 1

Sales Budget December January 510000 470000 Sales Part 1 - Schedule of Expected Cash Collections December January Cash Sales 3,57,000 3,29,000 8 Credit Sales 1.14.800 1.42.800 9 Total Cash Collections 4,71,800 4,71.800 10 11 Merchandise Purchases Budget 12 December January 13 Budget Cost of Goods Sold 3,82,500 3,52,500 14 Add Desired Ending Inventory 246750 15 Total Needs 6,29,250 16 Less Beginning Inventory 3,50,000 17 Required Purchases 2,79.250 18 19 21 22 20 Schedule of Expected Cash Disbursements December January 23 Nov. purchases 3,73,500 24 December purchases 2.79.250 Part 3 25 Total Cash Disbursement for Purchases 3,73,500 2.79.250 26

27 Cash Budget 28 29 Cash Balance Beginning 30 Add Cash Collections 31 Total Cash Available 32 Less Cash Disburtments: 33 Inventory Purchases 34 Expenses December 51,000 4,71,800 5,22,800 3,73,500 45,900 35 4,19,400 1,03,400 0 1,03,4000 36 37 Total Cash Disbursement 38 Excess (deficiency) of cash 39 Financing: 40 Borrowings 41 Repayments 42 Interest 43 Total Financing 44 Cash Balance, Ending 45 46 Handy hardware 47 Part 2 -Income Statement 48 49 Sales 50 Cost Of Goods Sold: 51 Beginning Inventory 52 Add Purchase 53 Goods Available for Sale 54 Ending Inventory 55 Gross Margin 56 57 Other Expenses 58 Bad debt exp.(5100002%) 59 Depreciation ( 453000/12) 60 61 Net Income 5,10,000 3,50.000 2,79,250 6,29,250 2,46,750 3,82,500 1,27,500 45900 10.200 37,750 93.850 33,650 62

Sales Budget December 510000 January 470000 Part 1 - Schedule of Expected Cash Collections 7 December =B3+0.7 114800 =B7+B8 Cash Sales Credit Sales Total Cash Collections January =C3+0.7 =B3+0.28 =C7+C8 8 9 10 11 Merchandise Purchases Budget January =C3*0.75 12 13 Budget Cost of Goods Sold 14 Add Desired Ending Inventory 15 Total Needs 16 Less Beginning Inventory 17 Required Purchases 18 19 20 December =B3*0.75 =C13*0.7 =B13+B14 350000 =B15-B16 C15-C16 21 Schedule of Expected Cash Disbursements January December 373500 22 23 Nov. purchases 24 December purchases 25 Total Cash Disbursement for Purchases 26 Part 3 =B17 =C24 =B23

27 Cash Budget 28 December 51000 =B9 =B29+B30 =B25 45900 =B33+B34+B35+B36 =B31-B37 =B40 =B40+B38 =C38 29 Cash Balance Beginning 30 Add Cash Collections 31 Total Cash Available 32 Less Cash Disburtments: 33 Inventory Purchases 34 Expenses 35 36 37 Total Cash Disbursement 38 Excess (deficiency) of cash 39 Financing: 40 Borrowings 41 Repayments 42 Interest 43 Total Financing 44 Cash Balance, Ending 45 46 Handy hardware 47 Part 2 -Income Statement 48 49 Sales 50 Cost Of Goods Sold: 51 Beginning Inventory 52 Add Purchase 53 Goods Available for Sale 54 Ending Inventory 55 Gross Margin 56 57 Other Expenses 58 Bad debt exp.(5100002%) 59 Depreciation ( 453000 / 12) 60 61 Net Income 62 510000 350000 279250 =B51+B52 246750 =B53-B54 =C49-C54 45900 10200 =453000/12 =B57+B58+B59 C55-C60