Question

Dilly Farm Supply is located in a small town in the rural west. Data regarding the store's operations follow: Sales are budgeted at $300,000 for November, $320,000 for December, and $220,000 for January. Collections are expected to be 70% in the month of sale and 30% in the month following the sale. The cost of goods sold is 75% of sales. The company desires to have an ending merchandise inventory at the end of each month equal to 80% of the next 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 $22,100. Monthly depreciation is $26,000. Ignore taxes.

Answer 1

Answer:

The balance sheet and the requirement are both missing from the question, find them in the attached:

December retained earnings is $375,200.00  

Explanation:

In order to calculate the retained earnings at the end of December, I started with sales projections for November,December and January,then deducted the cost of goods sold since it is 75% of sales in each month.

Thereafter,I deducted the other monthly expenses as well as the depreciation.

Finally  I added the net income for November and December to retained earnings in the balance sheet as the end of October, which gives retained earnings at the end of December.

Answer 2

Answer:

Cash Budget                                     Nov                Dec            Jan

Receipts

Cash received from debtors           $210,000      $314,000    $250,000

Total Receipts                                  $210,000      $314,000    $250,000

Payments

Cash paid to Creditors                    -                    $237,000      $180,000

Other monthly expenses                $22,100        $22,100         $22,100

Total Payments                               $22,100        $259,100       $202,100

Cash surplus                                   $187,900      $54,900         $47,900

opening Cash                                  -                    $187,900        $242,800

Closing balance                           $187,900         $242,800      $290,700

Explanation:

The Question is incomplete but judging by its nature it requires Cash budget.

A Cash Budget is a statement used to determine cash flow over a period of time and also shows if a company has sufficient cash at the end of that given period.

Cash Collection schedule  credit sales        Nov                Dec              Jan  

November sales                $300,000  

collection : Nov 70%                                    210,000

                  Dec 30%                                                          90,000

December Sales               $320,000

Collection : Dec 70%                                                         224,000

                   Jan  30%                                                                             96,000

January Sales                  $220,000

                    Jan 70%                                                                            154,000

Total                                                           $210,000       $314,000    $250,000

  Cash Paid to creditors

                                       Credit Purchase   Nov             Dec           Jan

Nov purchase                 $237,000                              $237,000  

Dec Purchase                 $180,000                                                  $180,000

Purchase = cost of goods sold + closing inventory - opening inventory

               = ( sales *75%) + (Next month's cost of sales *80%) - (this months cost of sales * 80%)

e.g Nov purchases = (300,000*75%) + (320,000*75%*80%) - (300,000*75%*80%)

                              = 225,000 + 192,000 - 180,000

                              =$237,000

For Nov to have figures it needs the previous month's information and the question is incomplete.

Depreciation is a non cash item therefore is not included in this statement.

Closing Balance = surplus + opening

opening = previous month's closing balance

Surplus = receipts - payments