Chapter 9, Problem 29E

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

• November 20x1 sales amounted to $200,000.
• Sales are budgeted at $220,000 for December 20x1 and $200,000 for January 20x2.
• Collections are expected to be 60 percent in the month of sale and 38 percent in the month following 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, 20x1, is as follows:

Required: Compute the following amounts.

1. 1. The budgeted cash collections for December 20x1.
2. 2. The budgeted income (loss) before income taxes for December 20x1.
3. 3. The projected balance in accounts payable on December 31, 20x1.