Question

Goldberg Company is a retail sporting goods store that uses an accrual accounting system. Facts regarding its operations follow:

•	Sales are budgeted at $290,000 for December and $260,000 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 $23,200.
•	Annual depreciation is $204,000, 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	$	24,000
Accounts receivable (net of $4,000 allowance for doubtful accounts)		68,000
Inventory		162,400
Property, plant, and equipment (net of $640,000 accumulated depreciation)		1,020,000
Total assets	$	1,274,400
Liabilities and Stockholders’ Equity
Accounts payable	$	144,000
Common stock		800,000
Retained earnings		330,400
Total liabilities and equity	$	1,274,400

Required:
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.)

4.	What is the projected balance in inventory on December 31, 2016? (Do not round intermediate calculations.)

5.	What are budgeted purchases for December? (Do not round intermediate calculations.)

6.	What is the projected balance in accounts payable on December 31, 2016? (Do not round intermediate calculations.)

Answer 1

Answer 1
From account receivable		$          68,000
Sales of December (290000*50%= 115000) (Discount = 145000*1% = 1450) (145000-1450)		$        143,550
Budgeted cash collections		$        211,550
Answer 2
Account receivable (Gross) (290000*50%)		$        145,000
Less: Allowance for Doubtful account (Uncollectable = 290000*2%)		$            5,800
Net account receivable - Dec 31		$        139,200
Answer 3
Gross Profit (290000*30%)		$          87,000
Less: Operating expense
Bad Debts Expense (290000*2%)		$            5,800
Monthly Operating expense (Paid)		$          23,200
Monthly Depreciation expense (204000/12)		$          17,000
Total operating expense		$          46,000
Income (loss) before income taxes		$          41,000
Answer 4 and 5
	December	January
Gross Sales value	$        290,000	$        260,000
Less: Cost of Goods Sold percentage (100%-30%)	70%	70%
Cost of goods Sold	$        203,000	$        182,000
Cost of goods Sold	$        203,000
Add: Ending Inventory (Next month's Cost of goods Sold* 80%) (182000*80%)	$        145,600
Goods Available for Sale	$        348,600
Less: Beginning Inventory	$        162,400
Budgeted purchases for December	$        186,200
Projected balance in inventory on December 31, 2016	$        145,600
Answer 6
Payment for merchandise is made in the month following the month of purchase. It means The Current month of Purchase becomes the Balance of Account payable at the end of the month.
Budgeted purchases for December		$        186,200
Projected balance in accounts payable on December 31, 2016		$        186,200