Sharp Family Company operates a snowboard shop where peak sales and activity occ

Question

Sharp Family Company operates a snowboard shop where peak sales and activity occur in the months of December and January. Data regarding the store's operations follow: • Sales are budgeted at $350,000 for January, 330,000 for February, and $275,000 for March and $250,000 in April. • Collections are expected to be 30% in themonth of sale, 65% in the month following the sale, 3% in the second month following sale and 2% uncollectible. • The cost of goods sold is 76% of sales. • The company desires ending merchandise inventory to equal 13% of the following month's cost of goods sold. Payment for merchandise is made 50% in the month ofpurchase and 50% in the month following the purchase. • Monthly operating expenses to be paid in cash are $12,000. • Equipment purchases of $40,000 in February and $30,000 in March were paid in cash. • Monthly depreciation is $15,000. • Dividends of $40,000 were declared and paid in January. • Any borrowings must be in $1,000 increments at 12% annual interest. Assume interest accrues at the beginning of the quarter and is paid at the end of the quarter. • The company must maintain a minimum cash balance of $30,000. • Ignore income taxes. • All accounts receivable from December 31 will be collected in January and all accounts payable at December 31 will be paid in January. • The balance sheet as of December 31st: Sharp Family Company Balance Sheet 12/31/15 Assets: Cash $22,000 Net Accounts Receivable $95,000 Merchandise Inventory $36,000 Property Plant and Equipment $1,600,000 Less: accumulated depreciation $588,000 $1,012,000 Total Assets $1,165,000 Liabilities & Stockholder's Equity Accounts Payable $202,000 Common Stock $350,000 Retained Earnings $613,000 Total liabilities and stockholder's equity $1,165,000 A) Prepare a Budgeted Income Statement:

Explanation / Answer

Answer:A)

Budgeted income statement Particulars Amount ($) Sales 955000 Less: COGS 725800 Gross margin 229200 Less: operating expenses 36000 Less: Dividend payment 40000 Less: Dep 45000 Less: Interest 5820 Net income 102380

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