Question

Capes Corporation is a wholesaler of industrial goods. Data regarding the store's operations follow: • Sales are budgeted at $420,000 for November, $430,000 for December, and $410,000 for January • Collections are expected to be 60% in the month of sale and 40% in the month following the sale. • The cost of goods sold is 70% of sales. . The company desires an ending merchandise inventory equal to 40% of the cost of goods sold in the following month. Payment for merchandise is made in the month following the purchase. • The November beginning balance in the accounts receivable account is $77,000. • The November beginning balance in the accounts payable account is $264,000. -20 Required: a. Prepare a Schedule of Expected Cash Collections for November and December b. Prepare a Merchandise Purchases Budget for November and December Complete this question by entering your answers in the tabs below. Required A Required B Prepare a Schedule of Expected Cash Collections for November and December November December Sales Schedule of Expected Cash Collections Accounts receivable November sales December sales Total cash collections

Answer 1

	November	December
Sales	$420,000	$430,000
Schedule of Expected Cash Collections:
Accounts receivables    [October sales x 40% = November beginning balance in the accounts receivables]	$77,000
November sales                 [Collected in November = November sales x 60% = $420,000 x 60%]    [Collected in December = November sales x 40% = $420,000 x 40%]	$252,000	$168,000
December sales                 [Collected in December = December sales x 60% = $430,000 x 60%]		$258,000
Total Cash Collections	$329,000	$426,000

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Merchandise Purchase budget	November	December
Cost of Goods Sold                        [Refer working note 1]	$294,000	$301,000
Add: Desired Ending Inventory [For November = Cost of Goods Sold for December x 40% = $301,000 x 40%] [For December = Cost of Goods Sold for January x 40% = (January sales x 70%) x 40% = ($410,000 x 70%) x 40%	$120,400	$114,800
Total needs	$414,400	$415,800
Less: Beginning Merchandise Inventory [For November = Ending inventory for October = Cost of Goods Sold for November x 40% = $294,000 x 40%] [For December = Ending inventory for Novemeber	$117,600	$120,400
Required Purchases	$296,800	$295,400

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Working note 1 - Cost of Goods Sold
	November	December
Sales                                                 (a)	$420,000	$430,000
Cost of Goods sold (% of sales)       (b)	70%	70%
Cost of Goods Sold                           (a x b)	$294,000	$301,000