Question

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

• Sales are budgeted at $190,000 for December and $160,000 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 sale. Bad debts expense is included as part of operating expenses.
• Gross margin is 30% of gross 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 $15,200.
• Annual depreciation is $144,000, 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, 2019
Assets
Cash	$	14,000
Accounts receivable (net of $4,000 allowance for doubtful accounts)		48,000
Inventory		106,400
Property, plant, and equipment (net of $540,000 accumulated depreciation)		920,000
Total assets	$	1,088,400
Liabilities and Stockholders’ Equity
Accounts payable	$	134,000
Common stock		800,000
Retained earnings		154,400
Total liabilities and equity	$	1,088,400

Required:

1. What is the total of budgeted cash collections for December? 142,050

2. How much is the book value of accounts receivable at the end of December?91,200

3. How much is the income (loss) before income taxes for December? 28,500

4. What is the projected balance in inventory on December 31, 2019? 89,600

5. What are budgeted inventory purchases for December? 116,200

6. What is the projected balance in accounts payable on December 31, 2019? 116,200

**i have included my answers in the above problem. i feel confident in 1-4 but i am not sure about 4 and 5. i would like someone to verify my answers. **

(For all requirements, Do not round intermediate calculations.)

Answer 1

1.Cash Collections = Accounts receivable +( Sales x 50%) =48000+(190000x50% - 1% ) = $142050

2.Net Accounts receivable at end of december = Accounts receivable - allowance for doubtful debt@2% =(190000x50%) - (190000x 2%) =95000-1900 = $91200

3.Pre tax operating income in december

Sales	$190000
Gross Margin 30%	$57000
Less: Operating expense
Bad debts (2% of 190000)	$3800
Other operating expense	$15200
Monthly depreciation(144000/12)	$12000
Income(loss) before income taxes	$26000

4.Projected balance of inventry on december 31 = Sales of january x 80% x 70% = 160000 x 80% x 70% =$89600

5.Budgeted purchases during December

Cost of goods sold (190000x70%)	$133000
Add: ending inventory	$89600
Total inventory required	$222600
Less: beginning inventory	$106400
Purchase During december	$116200

6. Projected balance in accounts payable on December 31

Begining accounts payable	$134000
Add: Purchases during december	$116200
Total Accounts payable	250200
Less: Payment made during december	$134000
Ending balance of accounts payable	$116200