Kashmir Industrial Gas Corporation supplies acetylene and other compressed gases

Question

Kashmir Industrial Gas Corporation supplies acetylene and other compressed gases to industry. Data regarding the store's operations follow for 2016:

Sales are budgeted at $390,000 for November, $370,000 for December, and $380,000 for January.

Collections are expected to be 90% in the month of sale, 5% in the month following the sale, and 5% uncollectible.

The cost of goods sold is 60% of sales. • The company purchases 70% of its merchandise in the month prior to the month of sale and 30% (30% of the cost of sales) in the month of sale. ((Hint:70% of the cost of sale) Payment for merchandise is made in the month following the purchase.

• Other monthly expenses to be paid in cash are $21,800. • Monthly depreciation is $18,000. • Ignore taxes. I

nstructions: Use the attached EXEL sheet to answer the following. (I don’t need your computations).

a. After preparing a Merchandise Purchases Budget for November, indicate the amount of purchase Kashmir Company will make in November 2016.

b. What will be the amount of Accounts Payable shown on the balance sheet dated November 30, 2016?

c. What will be the cash balance as of November 30, 2016?

d. What will be the balance in the retained earnings as of November 30, 2016?

Explanation / Answer

Working Notes Value (in $) October November December January A Sales               3,90,000     3,70,000     3,80,000 Collection from Sales B In the month(90% of (A))               3,51,000     3,33,000     3,42,000 C Next month (5% of previous month sales)        19,500        18,500 Total Collection from sales (B + C )               3,51,000     3,52,500     3,60,500     7,21,000 Value (in $) October November December January Cost of goods sold (60% of sales)               2,34,000     2,22,000     2,28,000 Purchases 70 % of the next months CGS                1,63,800               1,55,400     1,59,600                  -   30 % of CGS in the month of sale                   70,200        66,600 Total                1,63,800               2,25,600     2,26,200 Payment for Purchases 100% in the following month               1,63,800     2,25,600     2,26,200 Other monthly expenses                   21,800        21,800        21,800 Total cash outflow               1,85,600     2,47,400     2,48,000 Cash Balance A Sales collection               3,51,000 B Cash outflow               1,85,600 C Cash Balance (A) - (B)               1,65,400 D Depreciation                   18,000 E Retained Earnings © - (D)               1,47,400 a After preparing a Merchandise Purchases Budget for November, indicate the amount of purchase Kashmir Company will make in November 2016.- $ 225,600 b What will be the amount of Accounts Payable shown on the balance sheet dated November 30, 2016? -$ 225,600 c What will be the cash balance as of November 30, 2016?- $ 165,400 d What will be the balance in the retained earnings as of November 30, 2016- $ 147,400

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