Question

Village Hardware is a retail hardware store. Information about the store's operations follows.

•	November 20x4 sales amounted to $440,000.
•	Sales are budgeted at $480,000 for December 20x4 and $440,000 for January 20x5.
•	Collections are expected to be 60 percent in the month of sale and 38 percent in the month following the sale. Two percent of sales are expected to be uncollectible. Bad debts expense is recognized monthly.
•	The store’s gross margin is 25 percent of its sales revenue.
•	A total of 70 percent of the merchandise for resale is purchased in the month prior to the month of sale, and 30 percent is purchased in the month of sale. Payment for merchandise is made in the month following the purchase.
•	Other monthly expenses paid in cash amount to $45,600.
•	Annual depreciation is $444,000.

The company's balance sheet as of November 30, 20x4, is as follows:

VILLAGE HARDWARE, INC. BALANCE SHEET NOVEMBER 30, 20x4
ASSETS
Cash	$	48,000
Accounts receivable (net of $7,400 allowance for uncollectible accounts)		156,000
Inventory		320,000
Property, plant, and equipment (net of $1,220,000 accumulated depreciation)		1,764,000
Total assets	$	2,288,000
LIABILITIES AND OWNER'S EQUITY
Accounts payable	$	351,000
Common stock		1,630,000
Retained earnings		307,000
Total liabilities and owner’s equity	$	2,288,000

Required:

1.	Compute the budgeted cash collections for December 20x4.

     

2.	Compute the budgeted income (loss) before income taxes for December 20x4.

     

3.	Compute the projected balance in accounts payable on December 31, 20x4.

  

Answer 1

Answer 1
The budgeted cash collections for December 20x4.
November sales collection [$440000 * 38%]	$167,200.00
December sales collection [$480000 * 60%]	$288,000.00
Budgeted Cash collection for December 20x4	$455,200.00
Answer 2
The budgeted income (loss) before income taxes for December 20x4
Sales	$480,000.00
Less : Cost of goods sold ($480000 * 75%)	$360,000.00
Gross Margin	$120,000.00
Less : Operating expenses (Cash)	$45,600.00
Less : Depreciation	$37,000.00
Less : Bad debt expense	$9,600.00
Budgeted Income (loss) before taxes	$27,800.00
Answer 3
The projected balance in accounts payable on December 31, 20x4.
Balance as on NOVEMBER 30, 20x4	$351,000.00
Add : Purchases
- 30% of December cost of goods sold [30% of $360000]	$108,000.00
- 70% of January cost of goods sold {[$440000 * 75%]*70%}	$231,000.00
Less : Payment	$351,000.00
Projected balance in accounts payable on December 31, 20x4.	$339,000.00