Carter Lumber sells lumber and general building supplies to building contractors
ID: 2556546 • Letter: C
Question
Carter Lumber sells lumber and general building supplies to building contractors in a medium-sized town in Montana. Data regarding the store's operations follow:
o Sales are budgeted at $380,000 for November, $390,000 for December, and $400,000 for January.
o Collections are expected to be 70% in the month of sale, 27% in the month following the sale, and 3% uncollectible.
o The cost of goods sold is 65% of sales.
o The company desires to have an ending merchandise inventory equal to 80% of the following month's cost of goods sold. Payment for merchandise is made in the month following the purchase.
o Other monthly expenses to be paid in cash are $22,000.
o Monthly depreciation is $20,000.
o Ignore taxes.
Balance Sheet October 31 Assets
Cash $13,000
Accounts receivable, net of allowance for uncollectible accounts 77,000
Inventory 197,600
Property, plant and equipment, net of $502,000 accumulated depreciation 992,000
Total assets $1,279,600
Liabilities and Stockholders' Equity
Accounts payable $240,000
Common stock 780,000
Retained earnings 259,600
Total liabilities and stockholders' equity $1,279,600
The accounts receivable balance, net of uncollectible accounts, at the end of December would be:
$88,700
The cash balance at the end of December would be:
$195,400
Retained earnings at the end of December would be:
$342,400
$207,900 $105,300 $117,000$88,700
The cash balance at the end of December would be:
$182,400 $13,000 $114,400$195,400
Retained earnings at the end of December would be:
$259,600 $445,100 $422,000$342,400
Explanation / Answer
Solution:
Part 1 --- Calculation of accounts receivable balance, net of uncollectible accounts, at the end of December
December total sales
$390,000
Less: 70% collected in the month (390,000*70%)
($273,000)
Accounts Receivable, gross at the end of December
$117,000
Less: 3% Uncollectible Account ($390,000*3%)
($11,700)
Accounts Receivable, Net of uncollectible account at the end of December
$105,300
Hence, the correct option is $105,300
Part 2 -- Cash balance at the end of December – Correct option is $195,400
Cash Budget for November and December
November
December
Beginning cash balance
$13,000
$94,000
Add: Cash Collections from Credit Sales (Refer part 1)
$343,000
$375,600
Total cash available
$356,000
$469,600
Less: Cash disbursements
Purchases (Refer Note 2)
$240,000
$252,200
other monthly expense
$22,000
$22,000
Total Cash disbursements
$262,000
$274,200
Ending Cash Balance (Cash Available - Cash Disbursements)
$94,000
$195,400
Hence, correct option is $195,400
Note 1 --- Cash Collection
November
December
Total
Budgeted Sales Gross
$380,000
$390,000
$770,000
Collection Schedule:
Accounts Receivable Beginning, net of uncollectible (Collected in November month)
$77,000
70% of November Sales collected in November
$266,000
27% of November Sales Collected in December
$102,600
70% of December Sales collected in December
$273,000
Total Cash Collection
$343,000
$375,600
$718,600
Note 2
Schedule of Expected Cash Disbursement of Merchandise Purchases
November
December
January
Cost of Goods Sold (65% of Sales)
$247,000
$253,500
$260,000
Add: Ending Inventory of Material (80% of following month's COGS)
$202,800
$208,000
Total Needs
$449,800
$461,500
Less: Beginning Inventory of Material
$197,600
$202,800
Total Budgeted Required Purchases
$252,200
$258,700
Schedule of Cash Disbursement for Merchandise Purchases
Accounts Payable beginning
$240,000
November Purchases paid in December
$252,200
Total Cash Disbursement for Purchase
$240,000
$252,200
Part 3 – Retained Earnings at the end of December – Correct option is $422,000
We need to prepare profit and loss account and Retained Earnings statement
Statement of Retained Earnings
$$
Retained Earnings, beginning
$259,600
Add: Profit of Nov and Dec (Refer Note 3)
$162,400
Retained Earnings, Ending
$422,000
Note 3 --
Profit and Loss Account
November
December
Total
Budgeted Sales, Net of Uncollectible (Sales*97%)
368600
378300
746900
Cost of Goods Sold (refer note 2)
247000
253500
500500
Gross Profit
121600
124800
246400
Less: Operating Expenses:
Monthly Expenses
$22,000
$22,000
$44,000
Depreciation Expense
$20,000
$20,000
$40,000
Total Operating Expenses
$42,000
$42,000
$84,000
Operating Income (Gross Profit - Total Operating Expense)
$79,600
$82,800
$162,400
Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you
December total sales
$390,000
Less: 70% collected in the month (390,000*70%)
($273,000)
Accounts Receivable, gross at the end of December
$117,000
Less: 3% Uncollectible Account ($390,000*3%)
($11,700)
Accounts Receivable, Net of uncollectible account at the end of December
$105,300
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