Miles Hardware sells fasteners and general building supplies to building contrac
ID: 2444860 • Letter: M
Question
Miles Hardware sells fasteners and general building supplies to building contractors in a medium-sized town in
Montana. data regarding the store's operations in 2014 is collected as below:
Sales are budgeted at:
November $ 3 80,000
December $ 3 90,000
January $ 4 00,000
The following cash collection schedule is used:
The month of sale 70%
Next month 27%
Uncollectible 3%
Cost of goods sold: 65% of sales
Desired ending inventory equals to: 80% of the following 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: $ 22,000
Monthly depreciation: $ 20,000
Miles declares a dividend payable on December 15 of: $ 12,000 (paid on January 15, 2015)
Ignore taxes.
Balance Sheet on October 31
Assets
Cash $ 15,000
Accounts Receivable (net of allowance) $ 77,000
Inventory $ 197,600
Property, plant and equipment (net) $ 992,000
Total Assets $ 1,281,600
Liabilities and Stockholder's Equity
Accounts Payable $ 240,000
Common Stock $ 780,000
Retained Earnings $ 259,600
Total Liabilities and Stockholders Equity $ 1,279,600
Retained earnings at December 31 will be:
The cash balance at the end of December would be:
Explanation / Answer
CALCULATION OF CASH BALANCE AT DECEMBER 31
3,80,000*70%=2,66,000 AND 27%OFPREVIOUS MONTH I.E ACCOUNT RECEIVABLE OF PREVIOUS MONTH=77,000
TOTAL COLLECTION=$3,43,000
3,90,000*70%+3,80,000*27%=$3,75,600
4,00,000*70%+3,90,000*27%
=$3,85,300
CASH BALANCE AS ON NOVEMBER 30=OPENING BALANCE+CASH COLLECTION-EXPENSE PAID -PAYMENT MADE FOR MERCHANDISE=$(15,000+3,43,000-22,000-2,40,000)=$96,000
CASH BALANCE AS ON DECEMBER 31=OPENING BALANCE+CASH COLLECTION-EXPENSE PAID -PAYMENT MADE FOR MERCHANDISE=$(96,000+3,75,600-22,000-2,47,000)=$2,02,600
CALCULATION OF RETAINED EARNINGS ON DECEMBER 31:
THEREFORE AS ON DECEMBER 31
RETAINED EARNINGS =$4,34,400
CASH BALANCE=$2,02,600
NOVEMBER($) DECEMBER($) JANUARY($) SALES 3,80,000 3,90,000 4,00,000 CASH COLLECTION3,80,000*70%=2,66,000 AND 27%OFPREVIOUS MONTH I.E ACCOUNT RECEIVABLE OF PREVIOUS MONTH=77,000
TOTAL COLLECTION=$3,43,000
3,90,000*70%+3,80,000*27%=$3,75,600
4,00,000*70%+3,90,000*27%
=$3,85,300
UNCOLLECTIBLE CASH 3,80,000*3%=11,400 3,90,000*3%=11,700 4,00,000*3%=12,000 COST OF GOODS SOLD 3,80,000*65%=2,47,000 3,90,000*65%=2,53,500 4,00,000*65%=2,60,000 CLOSING INVENTORY(NOTE 1) 2,53,500*80%=2,02,800 2,60,000*80%=2,08,000 MONTHLY EXPENSE PAID IN CASH 22,000 22,000 22,000 DEPRECIATION 20,000 20,000 20,000 DIVIDEND PAYABLE 12,000 COST OF MERCHANDISE PAID 2,40,000 2,47,000 2,53,500