Goldberg Company is a retail sporting goods store that uses an accrual accountin
ID: 2475087 • Letter: G
Question
Goldberg Company is a retail sporting goods store that uses an accrual accounting system. Facts regarding its operations follow: • Sales are budgeted at $280,000 for December and $250,000 for January, terms 1/eom, n/60. •
Collections are expected to be 50% in the month of sale and 48% in the month following the sale. Two percent of sales are expected to be uncollectible and recorded in an allowance account at the end of the month of sales. Bad debts expense is included as part of operating expenses.
• Gross margin is 30% of sales.
• All accounts receivable are from credit sales. Bad debts are written off against the allowance account at the end of the month following the month of sale.
• Goldberg desires to have 80% of the merchandise for the following month’s sales on hand at the end of each month. Payment for merchandise is made in the month following the month of purchase.
• Other monthly operating expenses to be paid in cash total $22,400.
• Annual depreciation is $198,000, one-twelfth of which is reflected as part of monthly operating expenses.
Goldberg Company’s statement of financial position at the close of business on November 30 follows:
GOLDBERG COMPANY Statement of Financial Position November 30, 2016
Assets
Cash $ 23,000
Accounts receivable (net of $4,000 allowance for doubtful accounts) 66,000
Inventory 156,800
Property, plant, and equipment (net of $630,000 accumulated depreciation) 1,010,000
Total assets $ 1,255,800
Liabilities and Stockholders’ Equity
Accounts payable $ 143,000
Common stock 800,000
Retained earnings 312,800
Total liabilities and equity $1,255,800
1. What is the total of budgeted cash collections for December? (Do not round intermediate calculations.)
2. How much is the book value of accounts receivable at the end of December? (Do not round intermediate calculations.)
3. How much is the income (loss) before income taxes for December? (Do not round intermediate calculations.) pre-tax operating income - December
Explanation / Answer
1)
the cash collections for the December is calculated as below
the net accounts receivable of November is $66,000
50% of December sale of $280,000 is $140,000
The totalcash collections in December is $206,000
2) The December account receivable (net of $5,600 allowance for doubtful accounts) 134,400
The following information is needed before calculation of net income statement for the month of December
We have to calculate the purchases for December . the formula is
Purchases = cost of goods sold + (closing inventory – opening inventory)
Cost of goods sold = sales – gross profit
Gross profit = 30% of sales or 100/130 * 30 or 280000/130 *30 is 64615.38
Cost of goods sold = 280,000 – 64,615.38 is 215384.62
Closing inventory = 80% of jan sales amount of $250,000 is $200,000
Opening inventory = $156,800
Purchases = 215384.62 + (200000 – 156800)
Purchases = 258584.62
The depreciation will be 1/12 th of $198,000 is $16,500
The bad debt expense would be $4,000 of November sales provision
The other operating expense is $22,400
The sales is $280,000 for December
The income statement on the above information is calculated below
Goldberg company
Budgeted income statement
For the month of december
december
Budgeted sales (in dollars)
280000
Operating expenses
purchases
258584.62
bad debt
4000
depreciation
16500
other expenses
22400
Total expenses
301484.62
Net income
-21484.62
There is a loss of $21484.62 for the month of December
Goldberg company
Budgeted income statement
For the month of december
december
Budgeted sales (in dollars)
280000
Operating expenses
purchases
258584.62
bad debt
4000
depreciation
16500
other expenses
22400
Total expenses
301484.62
Net income
-21484.62
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