Capes Corporation is a wholesaler of industrial goods. Data regarding the store\

Question

Capes Corporation is a wholesaler of industrial goods. Data regarding the store's operations follow:

Sales are budgeted at $460,000 for November, $470,000 for December, and $450,000 for January.

Collections are expected to be 55% in the month of sale and 45% in the month following the sale.

The cost of goods sold is 60% of sales.

The company desires an ending merchandise inventory equal to 35% of the cost of goods sold in the following month. Payment for merchandise is made in the month following the purchase.

The November beginning balance in the accounts receivable account is $81,000.

The November beginning balance in the accounts payable account is $268,000.

Required:

a. Prepare a Schedule of Expected Cash Collections for November and December.

b. Prepare a Merchandise Purchases Budget for November and December.

November December Sales Schedule of Expected Cash Collections Accounts receivable November sales December sales Total cash collections 0 $

Explanation / Answer

Solution: a. November December Sales 460,000 Schedule of Expected cash collections Accounts receivable 81,000 November sales 253,000 207,000 December sales 258,500 Total cash collections 334,000 465,500 Working Notes: November December Sales 460,000 470,000 Schedule of Expected cash collections Accounts receivable 81,000 November sales 253,000 207,000 [460,000 x 55% ] [460,000 x 45% ] December sales 258,500 [470,000 x 55%] Total cash collections 334,000 465,500 b. Merchandise Purchases Budget November December Cost of goods sold 276,000 282,000 Add desired ending inventory 98,700 94,500 Total Needs 374,700 376,500 Less beginning inventory 96,600 98,700 Required purchases 278,100 277,800 Working Notes: Merchandise Purchases Budget November December January Cost of goods sold 276,000 282,000 270,000 [60% x 460,000] [60% x 470,000 ] [60% x 450,000 ] Add desired ending inventory 98,700 94,500 [35% x 282,000] [35% x 270,000] Total Needs 374,700 376,500 Less beginning inventory 96,600 98,700 [35% x 276,000] [35% x 282,000] Required purchases 278,100 277,800 Please feel free to ask if anything about above solution in comment section of the question.

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