Handy Hardware is a retail hardware store. Information about the store’s

Question:

Handy Hardware is a retail hardware store. Information about the store’s operations follows.

• November 20×1 sales amounted to $200,000. • Sales are budgeted at $220,000 for December 20×1 and $200,000 for January 20×2.

• Collections are expected to be 60 percent in the month of sale and 38 percent in the month follow-ing the sale. Two percent of sales are expected to be uncollectible. Bad debts expense is recognized monthly.

• The store’s gross margin is 25 percent of its sales revenue.

• A total of 80 percent of the merchandise for resale is purchased in the month prior to the month of sale, and 20 percent is purchased in the month of sale. Payment for merchandise is made in the month following the purchase.

• Other monthly expenses paid in cash amount to $22,600.

• Annual depreciation is $216,000.

The company’s balance sheet as of November 30, 20×1, is as follows:

HANDY HARDWARE, INC.

Balance Sheet

November 30, 20×1

Assets

Cash ……………………………………………………………………………………………………………………………………………………..$    22,000

Accounts receivable (net of $3,500 allowance for uncollectible accounts) ………………………………………………….76,000

Inventory ……………………………………………………………………………………………………………………………………………….140,000

Property, plant, and equipment (net of $590,000 accumulated depreciation) ……………………………………………..    862,000

Total assets ……………………………………………………………………………………………………………………………………………$1,100,000

Liabilities and Stockholders’ Equity

Accounts payable …………………………………………………………………………………………………………………………………..$    162,000

Common stock ………………………………………………………………………………………………………………………………………795,000

Retained earnings ………………………………………………………………………………………………………………………………….    143,000

Total liabilities and stockholders’ equity …………………………………………………………………………………………………..$1,100,000

Required: Compute the following amounts.

  1. The budgeted cash collections for December 20×1.
  2. The budgeted income (loss) before income taxes for December 20×1.
  3. The projected balance in accounts payable on December 31, 20×1.

Answer:

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