Question

Handy Hardware is a retail hardware store. Information about the store’s operations follows.

November 20x1 sales amounted to $450,000.

Sales are budgeted at $490,000 for December 20x1 and $450,000 for January 20x2.

Collections are expected to be 70 percent in the month of sale and 28 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 80 percent of the merchandise for resale is purchased in the month prior to the month of sale, and 20 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 $45,700.

Annual depreciation is $447,000.

The company’s balance sheet as of November 30, 20x1, is as follows:

HANDY HARDWARE, INC. Balance Sheet November 30, 20x1
Assets
Cash	$	49,000
Accounts receivable (net of $7,500 allowance for uncollectible accounts)		157,000
Inventory		330,000
Property, plant, and equipment (net of $1,230,000 accumulated depreciation)		1,774,000
Total assets	$	2,310,000
Liabilities and Stockholders’ Equity
Accounts payable	$	361,500
Common stock		1,640,000
Retained earnings		308,500
Total liabilities and owner’s equity	$	2,310,000

Required:

Compute the budgeted cash collections for December 20x1.

Compute the budgeted income (loss) before income taxes for December 20x1.

Compute the projected balance in accounts payable on December 31, 20x1.

Answer 1