Accounts Receivable, Accounts Payable, Retained Earnings, and Cash Balance Question Accounting

Question

Answer questions based on following information :

HomeExpress sells home building supplies to contractors in Vermont. Data regarding the store's operation is as follows:

A) Sales Budget

March : $380,000 April : $390,000 May : $400,000

 

B) Collections are expected to be : 70% in month of sale, 30% in month following

 

C) The cost of goods sold is 65% of sales

 

D) The company desires to have ending merchandise inventory equal to 80% of the following month's cost of goods sold. Payment for merchandise is made in month following purchase.

 

E) Other monthly expenses to be paid in cash are : $22,000

 

F) Monthly Depreciation is : $20,000

 

G) Ignore taxes

 

H) HomeExpress is planning to declare dividends on 3/25 in the amount (to be payable on 4/15) : $10,000

 

Budgeted Balance Sheet as of February 28th

 

Assets

 

Cash : $13,000

Accounts Receivable : $78,000

Inventory : $197,600

Property, Plant, and Equipment : $1,494,000

Accumulated Depreciation : $502,000

Total Assets : $1,280,600

 

Liabilities and Stockholders Equity :

 

Accounts Payable : $231,400

Common Stock : $780,000

Retained Earnings : $269,200

Total Liabilities : $1,280,600

 

Question 1) The Accounts Receivable Balance as of March would be ?

A) $117,000 B) $120,000 C) $114,000 D) $177.450 E) None of above

Answer was C) but I need help with steps as to how.

 

Question 2) Accounts Payable as of March would be ?

A) $252,200 B) $258,700 C) $273,000 D) $208,000 E) None of above

Answer was A) but I need help with steps as to how.

 

Question 3) Retained Earnings at end of March would be ?

A) $380,200 B) $360,200 C) $363,700 D) $350,200 E) None of above

Answer was D) but I need help with steps as to how.

 

Question 4) The cash balance at the end of March would be ?

A) $344,000 B) $103,600 C) $90,600 D) $216,400 E) None

 

Answer was B) but I need help with steps as to how.

 

Thanks.

 

Answer 1

Question 1) The Accounts Receivable Balance as of March:

 Beginning A/R balance $78,000- 30% collection of Feb sales 78,000+ March sales 380,000 - March collection 266,000 (380,000x.70)= $114,000, which is Option C) above.

Question 2) Accounts Payable as of March:

- Ending merchandise inventory equal to 80% of the following month's cost of goods sold

  April COGS= Sales 390,000X 65%= 253,500 x 80%= $202,800, this represents new purchases

- Actual Merchandise sold in March COGS                 = $247,000, March sales 380,000x65%

- Less payment of previous month                           =(197,600)

A/P balance in March                                              = $252,200 , Option A) above

Question 3) Retained Earnings at end of March

RE balance - Feb                                                   $269,200

Net Income March                                                     91,000 (Rev 380,000-COGS 247,00- exp 22,000- Dep 20,000)

Less: Declared Dividends 3/25                                 (10,000)

Retained Earnings Balance March                              350,200 , Option D) above

Question 4) The cash balance at the end of March

Beg. Cash balance                                                  $ 13,000

Sales Collection March sales 380,000x70%                266,000

A/R Balance collection                                               78,000

A/P payments                                                          (33,800)

Inventory payment                                                  (197,600)

Expenses payment - March                                       ( 22,000)

Cash balance March                                               $ 103,600, Option B) above