Village Hardware is a retail hardware store. Information about the store\'s oper

Question

Village Hardware is a retail hardware store. Information about the store's operations follows.
-Nov 20X4 sales amounted to $400,000
-Sales are budgeted at $440,000 for Dec 20X4 and $400,000 for Jan 20X5
-Collections are expected to be 60 percent in the month of sale and 38 percent in the month following the sale. Two percent of sales are expected to be uncollecible. Bad debts expense is recognized monthly.
-The store's gross margin is 25 percent of its sales revenue.
-A total of 80 percent of the merchandise for resale is purchased in the month prior to the month of sale, and 20 percent is purchased in the month of sale. Paument for merchandise is made in the month following the purchase.
-Other monthly expenses paid in cash anount to $45,200
-Annual depreciation is 432,000

The company's balnce sheet as of Nov 30, 20X4 is as follows

Cash....44,000
Accts receivable (net of $7,000 allowance for uncollectible accts)..152,000
Inventory......280,000
Property, plant, and equipment (net of 1,800,000 accumulated depreciation)1,724,000
total assets..$2,200,000
Accts payable...$324,000
Common stock.....1,590,000
Retained earnings...286,000
Total liabilities and stockholder's equity...$2,200,000


Required: Compute the following amounts.

1. The budgeted cash collections for Dec 20X4
2. The budgeted income (loss)before income taxes for Dec 20X4
3. The projected balance in accts payable on Dec 31, 20X4


Please show work.

Explanation / Answer

1. The budgeted cash collections for Dec20x4
Beginning balance of cash $44,000 Add: Cash receipts November month sales               152,000 December month sales                264,000 416,000 Total cash receipts 460,000 November month sales = $400,000 38% collected in the following month i.e. 400,000*38% = 152,000 Decembermonth sales = $440,000 60% collectedin the month sales. i.e. 440,000 *60% = 264,000 2.Budgeted Income Statement for Dec 20x4 Sales $440,000 Gross margin 25% on Sales Gross margin   110,000 Less: Operating expenses: monthly expensea 45,200 Annual Depreciation (432,000/12) 16,000 61,200 Operating income before tax 48,800 3. The projected balance in accts payable on Dec 31, 20X4 Beginning balance of accounts payable $0 Add: Purchases (320,000 + 88,000) 408,000 Total payables $408,000 Less: Ending balance in accounts payable 324,000 Cash payments for current payables $84,000 Merchandise purchases Details: Working notes: For November $400,000 *80% = 320,000 December 440,000 *20%        = 88,000 Beginning balance of cash $44,000 Add: Cash receipts November month sales               152,000 December month sales                264,000 416,000 Total cash receipts 460,000

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