Macheski Company, an importer and retailer of Polish pottery and kitchenware, pr
ID: 2567934 • Letter: M
Question
Macheski Company, an importer and retailer of Polish pottery and kitchenware, prepares a monthly master budget. Data for the July master budget are given below:
The June 30th balance sheet follows
Cash $ 25,000
Accounts payable $ 45,000
Accounts receivable 110,000
Capital stock 300,000
Inventory 54,000
Retained earnings 94,000
Building and equipment (net) 250,000
Actual sales for June and budgeted sales for July, August, and September are given below:
June $137,500
July 360,000
August 400,000
September 320,000
Sales are 20 percent for cash and 80 percent on credit. All credit sales are collected in the month following the sale. There are no bad debts.
The gross margin percentage is 40 percent of sales. The desired ending inventory is equal to 25 percent of the following month's sales. One fourth of the purchases are paid for in the month of purchase and the others are purchased on account and paid in full the following month.
The monthly cash operating expenses are $43,000, and the monthly depreciation expenses are $7,000.
What is the balance of the retained earnings account at the end of July?
a. $94,000 b. $398,000 c. $360,000 d. $188,000
Explanation / Answer
the balance of the retained earnings account at the end of July = Retained Earnings June 30 + Net Profit Earned During July month
So, we need to calculate the Net Profit earned during the July
Income Statement
July
Sales Revenue
$360,000
Cost of Goods Sold (60% of sales)
$216,000
Gross Profit (40% of sales)
$144,000
Operating Expenses:
Cash Operating Expenses
$43,000
Depreciation Expenses
$7,000
Total Operating Expenses
$50,000
Net Profit during the month
$94,000
the balance of the retained earnings account at the end of July = Retained Earnings June 30 + Net Profit Earned During July month
= 94,000 + $94,000
= $188,000
Hence, the correct option is d. $188,000
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July
Sales Revenue
$360,000
Cost of Goods Sold (60% of sales)
$216,000
Gross Profit (40% of sales)
$144,000
Operating Expenses:
Cash Operating Expenses
$43,000
Depreciation Expenses
$7,000
Total Operating Expenses
$50,000
Net Profit during the month
$94,000
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