Question

The following data are for the Ipad Supplies Company which is a store located in New York City:

• Sales are budgeted at $355 ,000, $240,000, and $220,000 for November, December and January, respectively.
• Collections are expected to be 55% in the month of sale, 40% in the month following the sale, and 5% uncollectible.
• The cost of goods sold is 60% of sales and includes only the cost of merchandise.
• The company purchases 60% of its merchandise in the month prior to the month of sale and 40% in the month of sale.
• 50% of payment for merchandise is made in the month of purchase with the remaining 50% in the following month.
• Monthly selling and administrative expenses to be paid in cash are $21,700.
• Monthly depreciation for selling and administrative office equipment is $17,000.
• Balance Sheet for October 31:

Statement of Financial Position October31

Assets:
Cash	$28,000
Accounts Receivable (Net of allowance for uncollectible accounts)	$78,000
Inventory	$85,200
Property Plant Equipment (Net of $640,000 accumulated depreciation)	$1,150,800
Total Assets	$1,342,000
Liabilities and Stockholders' Equity:
Accounts Payable	$200,000
Common Stock	$800,000
Retained Earnings	$342,000
Total Liabilities and Stockholders' Equity	$1,342,000

14. The net income (loss) before interest and taxes for Ipad Supplies in January   would be:

A. $85,550    B.   $3 8,300       C. $57 ,300    D. $45,300 E. $96,000         

15. The amount of merchandise purchases for Ipad Supplies in December would   be:

A. $139,200 B. 136,800 C. $232,000 D. $162,400         E. $141,600

Attention: when answering the following question, plaese refer to original data for Ipad Supplies and assume its merchandise purchase costs are $130,000 and $190,000 for November and December, respectively, regardless what you found in the previous questions.

16. Determine Ipad Supplies’ accounts payable to merchandise suppliers at the end of December:

A. $95,000 B. $70,000 C. 80,000 D. 90,000 E. Correct answer is not listed.

Answer 1

14.

Sales	$       2,20,000
Less
Cost of Goods Sold	$       1,32,000	=220000*60%
Selling and Administrative Expenses	$          21,700
Bad Debt Expense	$          11,000	=220000*5%
Depreciation	$          17,000
	$       1,81,700
Net Income	$          38,300

Answer is B. $38300

15.

	December
Sales	$       2,40,000
Cost of Goods Sold	$       1,44,000
Add : Desired Ending Inventory	$          79,200
Less : Beginning Inventory	$          86,400
Purchase cost	$       1,36,800

Company purchases 60% of its merchandise in the month prior to the month of sale, this implies that ending inventory for the month is 60% of next months requirements
Therefore Ending Inventory = 60% of (60% of $220000)
Beginning Inventory = 60% 0f $144000

Answer is B. $136,800

16.
Accounts Payable Balance = 50% of December Purchase cost, since 50% are paid in same month and 50% in following month
= 50% of $190,000 = $95,000

Answer is A. $95,000