Kelly Company is a retail sporting goods store. Facts regarding Kelly\'s operati
ID: 2383162 • Letter: K
Question
Kelly Company is a retail sporting goods store. Facts regarding Kelly's operations are as follows:• Sales are budgeted at $220,000 for November and $200,000 for December.
• Collections are expected to be 60% in the month of sale and 38% in the month following the sale. 2% of sales are expected to be uncollectible.
• The cost of goods sold is 75% of sales.
• A total of 80% of the merchandise is purchased in the month prior to the month of sale and 20% is purchased in the month of sale. Payment for merchandise is made in the month following the purchase.
• Other monthly expenses to be paid in cash are $22,600.
• Monthly depreciation is $18,000.
Kelly Company
Statement of Financial Position
October 31
Assets
Cash $ 22,000
Accounts receivable
(net of allowance for uncollectible accounts) 76,000
Inventory 132,000
Property, plant and equipment
(net of $680,000 accumulated depreciation) 870,000
Total assets $1,100,000
Liabilities and Stockholders’ Equity
Accounts payable $ 162,000
Common stock 800,000
Retained earnings 138,000
Total liabilities and stockholders’ equity $1,100,000
80. The budgeted cash collections for November are:
A) $208,000
B) $132,000
C) $203,600
D) $212,000
81. The net income for November is:
A) $32,400
B) $28,000
C) $14,400
D) $10,000
82. The projected balance in accounts payable on November 30 is:
A) $162,000
B) $204,000
C) $153,000
D) $160,000
83. The projected balance in inventory on November 30 is:
A) $160,000
B) $120,000
C) $153,000
D) $150,000
Explanation / Answer
80. Budgeted cash collections is the total cash that will be collected in a particular month from the customers for the sold goods. Now, Budgeted cash collections for Nov. = Previous receivables + 60% of Nov sales = 76000 + 0.6*220,000 = 208,000 82. Accounts payable= 20% 0f COGS(nov) + 80% of COGS(dec) = 0.2*0.75*220000+0.8*0.75*200000 = 153,000 83. Projected Inventory = Present Inventory - COGS + Inventory purchased = 132,000 - 220000*0.8*0.75 + 0.8*0.75*200000 = 120,000 81. COGS(nov) = 220,000*0.75 COGS(nov) is the cost of goods sold in nov COGS(nov) = 165,000 Cash disbursement in Nov = 0.8*165,000 = 132,000 Net Income in Nov. = cash collections - cash disbursements - other expenses = 208,000 - 162,000 - 22,600 - 18,000 = 14,400
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