Question

Capes Corporation is a wholesaler of industrial goods. Data regarding the store's operations follow:

Sales are budgeted at $470,000 for November, $480,000 for December, and $460,000 for January.

Collections are expected to be 60% in the month of sale and 40% in the month following the sale.

The cost of goods sold is 70% of sales.

The company desires an ending merchandise inventory equal to 40% of the cost of goods sold in the following month. Payment for merchandise is made in the month following the purchase.

The November beginning balance in the accounts receivable account is $82,000.

The November beginning balance in the accounts payable account is $269,000.

Required:

Prepare a Schedule of Expected Cash Collections for November and December.

	November December Sales $470,000 $480,000 Schedule of Expected Cash Collections Accounts receivable $82,000 November sales December sales Total cash collections $82,000 $0

Prepare a Merchandise Purchases Budget for November and December.

	Merchandise Purchases Budget November December Cost of goods sold Total needs Required purchases $ $

Answer 1

	November	December
Sales	$                                   470,000	$                                   480,000
Schedule of Expected Cash Collections
Accounts receivable	$                                      82,000
November sales	$470,000*60% = $282,000	$470,000*40% = $188,000
December sales		$480,000*60% = $288,000
Total cash collections	$                                   364,000	$                                   476,000

	November	December
Cost of goods sold	$470,000*70% = $329,000	$480,000*70% = $336,000
Add: Desired ending inventory	$336,000*40% = $134,400	$460,000*70%*40% = $128,800
Total needs	$                                   463,400	$                                              464,800
Less: Budgeted beginning inventory	$329,000*40% = $131,600	$336,000*40% = $134,400
Required purchases	$                                   331,800	$                                              330,400

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