Question

Goldman has the following budget plans:

• Sales are budgeted at $440,000 for November, $420,000 for December, and $410,000 for January.
• Collections are expected to be 65% in the month of sale and 35% in the month following the sale.
• The cost of goods sold is 80% of sales.
• The company would like to maintain ending merchandise inventories equal to 70% of the next month's cost of goods sold. Payment for merchandise is made in the month following the purchase.
• Other monthly expenses to be paid in cash are $25,000.
• Monthly depreciation is $16,000.

Balance Sheet
October 31
Assets
Cash	$ 21,000
Accounts receivable	71,000
Merchandise inventory	246,400
Property, plant, and equipment (net of $573,000 accumulated depreciation)	1,095,000
Total assets	$ 1,433,400
Liabilities and stockholders’ equity
Accounts payable	$ 255,000
Common stock	821,000
Retained earnings	357,400
Total liabilities and stockholders’ equity	$ 1,433,400

Calculate the following amounts for the balance sheet at November 30:

Cash

Accounts receivable

Inventory

Accounts payable

Retained earnings

Answer 1

We will prepare cash receipt budget

	November	December
Sales	$440,000	$420,000
receipts from sales in October	$71,000
receipts from sales in November	$286,000[$440,000*65%]
cash receipts in Novemeber	$357,000

accounts receivables = November sales*35% receivable in december

=$440,000*35%

=$154,000

We will prepare purchase budget

	Novemeber	December
Sales	$440,000	$420,000
cost of goods sold	$352,000[$440,000*80%]	$336,000[$420,000*80%]
Add: desired ending inventory	$235,200[$336,000*70%]
Less: beginning inventory	$246,400
budgeted purchase	$340,800[$352,000+235,200-246,400]

Cash payment in November = accounts payable of October = $255,000

Cash balance = Beginning cash balance+cash receipts-cash payments

=$21,000+$357,000-$255,000-$25,000 cash expense

=$98,000

Income statement for November

sales	$440,000
Less: cost of goods sold	($352,000)	$440,000*80%
Less: cash expenses	($25,000)
Less: depreciation	($16,000)
Net Income	$47,000

retained earnings = beginning balance+net income for the month

=$357,400+$47,000

=$404,400

Cash	$98,000
Accounts receivable	$154,000
Inventory	$235,200	As calculate above
Accounts payable	$340,800	Budgeted purchase of November which will be paid in December
Retained earnings	$404,400

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