Question

Sports Fanatic Company is a retail sporting goods store that uses accrual accounting for its records. Information on Sports Fanatic’s operations are as follows:

1.		The store has budgeted sales at $220,000 for January and $200,000 for February.
2.		It expects collections to be 60% in the month of sale and 38% in the month following the sale. It expects 2% of sales to be uncollectible.
3.		Gross margin is 25% of sales.
4.		It purchases a total of 80% of the merchandise for resale in the month before the month of sale and 20% in the month of sale. It makes payments for merchandise in the month after it purchases it.
5.		Other expected monthly expenses to be paid in cash amount to $22,600.
6.		Annual depreciation is $216,000.
7.		Sports Fanatic’s balance sheet at the close of business on December 31 follows.

SPORTS FANATIC COMPANY Balance Sheet December 31
Assets
Cash		$22,000
Accounts receivable (net of $4,000 allowance for uncollectible accounts)		76,000
Inventory		132,000
Property, plant, and equipment (net of $680,000 of accumulated depreciation)		870,000
Total assets		$1,100,000
Liabilities and Shareholders’ Equity
Accounts payable		$162,000
Common shares		800,000
Retained earnings		138,000
Total liabilities and shareholders’ equity		$1,100,000

1. Prepare the income statement for January. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).

2. Prepare the cash budget for January. (Do not leave any answer field blank. Enter 0 for amounts.

3. Prepare the budgeted balance sheet for January. (List Current Assets in order of liquidity.)

Assets
Cash
Accounts Receivable
Inventory
Property, Plant and Equipment
Total Assets
Liabilities and Shareholder's Equity
Accounts Payable
Common Shares
Retained Earnings
Total Liabilities and Shareholder's Equity

Answer 1