Carver Lumber sells lumber and general building supplies to building contractors

Question

Carver Lumber sells lumber and general building supplies to building contractors in a medium-sized town in Montana. Data regarding the store's operations follow:

Sales are budgeted at $366,000 for November, $336,000 for December, and $316,000 for January.

Collections are expected to be 90% in the month of sale and 10% in the month following the sale.

The cost of goods sold is 70% of sales.

The company desires to have an ending merchandise inventory equal to 70% 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 are $26,300.

Monthly depreciation is $19,200.

Ignore taxes.

The net income for December would be:

Multiple Choice

$55,300

$59,900

$47,140

$74,500

Balance Sheet
October 31 Assets Cash $ 23,800 Accounts receivable 80,200 Inventory 179,340 Property, plant and equipment, net of $510,000 accumulated depreciation 1,018,000 Total assets $ 1,301,340 Liabilities and Stockholders’ Equity Accounts payable $ 280,000 Common stock 796,000 Retained earnings 225,340 Total liabilities and stockholders’ equity $ 1,301,340

Explanation / Answer

Calculate net income for december :

Net income = Sales-Cost of goods sold-operating expenses

= (336000-336000*70%-26300-19200)

Net income = 55300

so answer is a) $55300

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