Goldberg Company is a retail sporting goods store that uses an accrual accountin

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? 2. How much is the book value of accounts receivable at the end of December? 3. How much is the income (loss) before income taxes for December? 4. What is the projected balance in inventory on December 31, 2016?

Explanation / Answer

1.Calculation of budgeted cash collections for december :

50% of cash to be received in the month of sales - $140000 ($280000*50%)

Last month account receivables(net of allowances) - $66000 (Equals to 48% of last month sales)-note.1

Budgeted cash collections for december month - $206000

note.1 Since it was given that all account receivables are only because of credit sales.

2. Book value of account receivables at the end of december month :

Since it was given that 50 % of sales will be received in the same month and 48% will be in next month and 2% shall be transferred to allowances . Account receivables consists of only credit sales and by keeping in mind the condition given 1/end of month,n/60.The account receivables of december will consists of that 48% only.

Account receivables at the end of december month = $134400

3.Calculation of income or loss for the month of december :

Gross margin on sales = $84000 (280000*30%)

Less:Operating expenses = ($22400)

Annual depreciation = ($16500) (198000/12)

Bad debts writtenoff = ($4000) (Note :2)

Income for the month of december = $41100

  Note:2  it was given that  Bad debts are written off against the allowance account at the end of the month following the month of sale.Bad debts are written off against last month allowance account balance.

4.Calculation of projected balance in inventory for december month ending :

Since it was given that Goldberg desires to have 80% of its merchandise for the following months sales in it's hands in current month.

January sales = $ 250000

Less: Gross margin = $ 75000

Inventory value = $175000

Inventory of december month = $140000 (175000*80%)

  

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