Goldberg Company is a retail sporting goods store that uses an accrual accountin
ID: 2476773 • 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.)
3. How much is the income (loss) before income taxes for December? (Do not round intermediate calculations.) pre-tax operating income - December
Explanation / Answer
Answer 1. Total Budgeted Cash Collections For December Collection from Accounts Receivables 66,000 From Dec Sales (280000 X 50% X 99% ) 138,600 Total Collections 204,600 Answer 3. Income Statement Sales 280,000 Cost of Goods Sold (70% of Sales) 196,000 Gross Margin (30% of Sales) 84,000 Less: Expenses Bade Debts (280000 X 2%) 5,600 Cash Discount - 280000 X 1% * 50% 1,400 Monthly Operating Expenses 22,400 Depreciation (198000 / 12) 16,500 Total expenses 45,900 Net Operating Income 38,100
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