Miles Hardware sells fasteners and general building supplies to building contrac
ID: 2445571 • Letter: M
Question
Miles Hardware sells fasteners and general building supplies to building contractors in a medium-sized town in Montana. Data regarding the store's operations in 2014 is collected as below:
Sales are budgeted at:
November: $380,000
December: $390,000
January: $400,000
The following cash collection schedule is used:
The month of sale: 70%
Next month: 27%
Uncollectible: 3%
Cost of goods sold: 65% of sales
Desired ending inventory equals to: 80% of the following month's cost of goods sold
Payment for merchandise is made in the month following the purchase.
Other monthly expenses to be paid in cash: $22,000
Monthly depreciation: $20,000
Miles declares a dividend payable on Dec 15 of: $12,000 (paid on Jan.15, 2015)
Ignore taxes.
Balance Sheet on October 31
Assets
Liabilities and Stockholder's Equity
1) Retained earnings at December 31 will be:
A. $244,000
B. $354,200
C. $405,000
D. $410,000 (Correct Answer)
E. $422,000
2) The cash balance at the end of December would be:
A. $13,000
B. $114,400
C. $197,400 (Correct Answer)
D. $120,400
E. None of the above
*** Please show the work necessary to attain the two correct answers. ***
Cash $15,000 Accounts Receivable (net of allowance) $77,000 Inventory $197,600 Property, plant and equipment (net) $992,000 Total Assets $1,281,600Explanation / Answer
CALCULATION OF CASH BALANCE AT DECEMBER 31
3,80,000*70%=2,66,000 AND 27%OFPREVIOUS MONTH I.E ACCOUNT RECEIVABLE OF PREVIOUS MONTH=77,000
TOTAL COLLECTION=$3,43,000
3,90,000*70%+3,80,000*27%=$3,75,600
4,00,000*70%+3,90,000*27%
=$3,85,300
CASH BALANCE AS ON NOVEMBER 30=OPENING BALANCE+CASH COLLECTION-EXPENSE PAID -PAYMENT MADE FOR MERCHANDISE=$(15,000+3,43,000-22,000-2,40,000)=$96,000
CASH BALANCE AS ON DECEMBER 31=OPENING BALANCE+CASH COLLECTION-EXPENSE PAID -PAYMENT MADE FOR MERCHANDISE=$(96,000+3,75,600-22,000-2,47,000)=$2,02,600
CALCULATION OF RETAINED EARNINGS ON DECEMBER 31:
NOVEMBER($) DECEMBER($) JANUARY($) SALES 3,80,000 3,90,000 4,00,000 CASH COLLECTION3,80,000*70%=2,66,000 AND 27%OFPREVIOUS MONTH I.E ACCOUNT RECEIVABLE OF PREVIOUS MONTH=77,000
TOTAL COLLECTION=$3,43,000
3,90,000*70%+3,80,000*27%=$3,75,600
4,00,000*70%+3,90,000*27%
=$3,85,300
UNCOLLECTIBLE CASH 3,80,000*3%=11,400 3,90,000*3%=11,700 4,00,000*3%=12,000 COST OF GOODS SOLD 3,80,000*65%=2,47,000 3,90,000*65%=2,53,500 4,00,000*65%=2,60,000 CLOSING INVENTORY(NOTE 1) 2,53,500*80%=2,02,800 2,60,000*80%=2,08,000 MONTHLY EXPENSE PAID IN CASH 22,000 22,000 22,000 DEPRECIATION 20,000 20,000 20,000 DIVIDEND PAYABLE 12,000 COST OF MERCHANDISE PAID 2,40,000 2,47,000 2,53,500Related Questions
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