Question

Weller Industrial Gas Corporation supplies acetylene and other compressed gases to industry. Data regarding the store's operations follow:

           

• Sales are budgeted at $330,000 for November, $300,000 for December, and $320,000 for January.
• Collections are expected to be 85% in the month of sale, 14% in the month following the sale, and 1% uncollectible.
• The cost of goods sold is 60% of sales.
• The company purchases 80% of its merchandise in the month prior to the month of sale and 20% in the month of sale. Payment for merchandise is made in the month following the purchase.
• Other monthly expenses to be paid in cash are $21,200.
• Monthly depreciation is $21,000.
• Ignore taxes.

           

	Statement of Financial Position
	October 31
	Assets:
	Cash	$    22,000
	Accounts receivable (net of allowance for uncollectible accounts)	83,000
	Inventory	158,400
	Property, plant and equipment (net of $594,000 accumulated depreciation)	1,004,000
	Total assets	$1,267,400
	Liabilities and Stockholders’ Equity:
	Accounts payable	$   196,000
	Common stock	620,000
	Retained earnings	451,400
	Total liabilities and stockholders’ equity	$1,267,400

            Required:

1. How much is the expected cash collection for the month of November?
2. How much is the expected cash collection for the month of December?
3. How much is the expected disbursement for merchandise for November?
4. How much is the expected disbursement for merchandise for December?
5. How much is the excess (deficiency) of cash available over disbursement for November?
6. How much is the excess (deficiency) of cash available over disbursement for December?
7. How much is the net operating income for November?
8. How much is the net operating income for December?
9. How much is the total assets as of December 31?
10. How much is the total liability as of December 31?
11. How much is the total retained earnings as of December 31?

Answer 1

Solution:

a.& b.  

	November	December
Sales	$330,000	$300,000
Schedule of Expected Cash Collection:
Accounts receivable	$83,000
November sales	$280,500 ($330,000 × 85%)	$46,200($330,000 × 14%)
December sales		$255,000 ($300,000 × 85%)
Total cash collection	$363,500	$301,200

c. & d.

	November	December
Cost of goods sold	$198,000 ($330,000 × 60%)	180,000 ($300,000 × 60%)
Merchandise purchase budget:
November sales	$39,600 ($198,000 × 20%)
December sales	$144,000 ($180,000 × 80%)	$36,000 ($180,000 × 20%)
January sales		$153,600
Total purchases	$183,600	$189,600
Disbursement for merchandise	$196,000	$183,600

* January sales

Cost of goods sold = $320,000 × 60% = $192,000

January sales = $192,000 × 80% = $153,600

e. f.)

	November	December
Cash receipts	$363,500	$301,200
Cash disbursement:
Disbursement for merchandise	$196,000	$183,600
Other monthly expenses	$21,200	$21,200
Total cash disbursement	$217,200	$204,800
Excess (deficiency) of cash available over disbursement	$146,300 ($363,500 - $217,200)	$96,400 ($301,200 - $204,800)

g. & h.

	November	December
Sales	$330,000	$300,000
Bad debt expenses	-$3,300 ($330,000 ×1%)	-$3,000 ($300,000 × 1%)
Cost of goods sold	-$198,000	-$180,000
Gross margin	$128,700	$117,000
Other monthly expenses	-$21,200	-$21,200
Depreciation	- $21,000	-$21,000
Net operating income	$86,500	$74,800

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