Use the following to answer questions 51-59:

Dilly Farm Supply is located in a small town in the rural west. Data regarding the store's
operations follow:

• Sales are budgeted at $290,000 for November, $310,000 for December, and $210,000 for
January.
• Collections are expected to be 65% in the month of sale, 33% in the month following the
sale, and 2% uncollectible.
• The cost of goods sold is 80% of sales.
• The company purchases 70% of its merchandise in the month prior to the month of sale
and 30% in the month of sale. Payment for merchandise is made in the month following the
purchase.
• Other monthly expenses to be paid in cash are $21,100.

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• Monthly depreciation is $21,000.

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• Ignore taxes.

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Statement of Financial Position

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October 31
Assets:
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Cash................................................................................................................ $ 25,000
Accounts receivable
(net of allowance for uncollectible accounts).............................................. 77,000
Inventory........................................................................................................ 162,400
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Property, plant and equipment

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(net of $624,000 accumulated depreciation)................................................ 1,026,000

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Total assets..................................................................................................... $1,290,400

Liabilities and Stockholders’ Equity:

Accounts payable............................................................................................ $ 239,000
Common stock................................................................................................ 740,000
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Retained earnings............................................................................................ 311,400

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Total liabilities and stockholders’ equity.......................................................... $1,290,400

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 51. Expected cash collections in December are:
A) $310,000
B) $95,700
C) $297,200
D) $201,500

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting
LO: 2 Level: Hard

Solution:

December sales ($310,000 × 65%)................. $201,500

November sales ($290,000 × 33%)................. 95,700
Total.............................................................. $297,200

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52. The cost of December merchandise purchases would be:
A) $248,000

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B) $232,000
C) $117,600

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D) $192,000
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Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting
LO: 3 Level: Hard
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Solution:
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Cost of
Sales Goods Sold
November...................................................... $290,000 $232,000
December....................................................... $310,000 $248,000
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January.......................................................... $210,000 $168,000

Merchandise purchases = Ending inventory + Cost of goods sold − Beginning inventory = ($168,000 ×
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70%) + $248,000 − ($248,000 × 70%)

= $117,600 + $248,000 − $173,600 = $192,000
53. December cash disbursements for merchandise purchases would be:
A) $192,000
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B) $243,200
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C) $117,600
D) $248,000

Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting
LO: 3 Level: Hard

Solution:

Cost of
Sales Goods Sold
November...................................................... $290,000 $232,000
December....................................................... $310,000 $248,000

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 January.......................................................... $210,000 $168,000
December cash disbursements = 70% of December Cost of Goods Sold + 30% of November Cost of Good
Sold = (70% × $248,000) + (30% × $232,000)
= $173,600 + $69,600 = $243,200

54. The excess (deficiency) of cash available over disbursements for December would be:
A) $46,600
B) $19,200
C) $13,700
D) $32,900

Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting
LO: 8 Level: Hard

Solution:

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Cash collections − Cash disbursements − Other monthly expenses

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= $297,200 − $243,200 − $21,100 = $32,900
Use the following to answer questions 109-113:

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

• Sales are budgeted at $350,000 for November, $320,000 for December, and $300,000 for
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January.
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• Collections are expected to be 90% in the month of sale, 8% in the month following the
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sale, and 2% uncollectible.

• The cost of goods sold is 75% of sales.
• The company purchases 60% of its merchandise in the month prior to the month of sale
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and 40% in the month of sale. Payment for merchandise is made in the month following the
purchase.
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• Other monthly expenses to be paid in cash are $24,700.

• Monthly depreciation is $16,000.
• Ignore taxes.
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Statement of Financial Position

October 31
Assets:
Cash................................................................................................................... $ 19,000
Accounts receivable (net of allowance for uncollectible accounts)...................... 77,000
Inventory............................................................................................................ 157,500
Property, plant and equipment (net of $502,000 accumulated depreciation)........ 1,002,000
Total assets......................................................................................................... $1,255,500

Liabilities and Stockholders’ Equity:

Accounts payable............................................................................................... $ 272,000
Common stock................................................................................................... 780,000
Retained earnings............................................................................................... 203,500
Total liabilities and stockholders’ equity............................................................. $1,255,500

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 109. The net income for December would be:
A) $32,900
B) $42,300
C) $39,300
D) $55,300

Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting
LO: 9 Level: Hard

Solution:

Net sales [$320,000 × (100% − 2%)]...................................... $313,600

Cost of goods sold ($320,000 × 75%)..................................... 240,000
Gross margin.......................................................................... 73,600
Depreciation expense.............................................................. 16,000

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Selling and administrative expense......................................... 24,700

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Net income............................................................................. $ 32,900

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110. The cash balance at the end of December would be:

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A) $19,000
B) $156,600
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C) $61,300
D) $137,600
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Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting
LO: 10 Level: Hard
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Solution:

November December
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October Accounts Receivable Balance ....... $ 77,000

Collection of November Sales.....................
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$350,000 × 90%....................................... 315,000

$350,000 × 8%......................................... $ 28,000
Collection of December Sales.....................
$320,000 × 90%....................................... 288,000
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October Accounts Payable Balance............. (272,000)

Payment for November Purchases...............
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($350,000 × 75%) × 40%......................... (105,000)

($320,000 × 75%) × 60%......................... (144,000)
Other cash monthly expenses...................... (24,700) (24,700)
Net cash inflow(outflow) per month............ $ 95,300 $ 42,300

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 Beginning cash balance, October 31....................................... $ 19,000
Add November net cash inflow............................................... 95,300
Add December net cash inflow............................................... 42,300
Ending cash balance, December 31......................................... $156,600

111. The accounts receivable balance, net of uncollectible accounts, at the end of December
would be:
A) $53,600
B) $83,400
C) $25,600
D) $32,000

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting
LO: 10 Level: Hard

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Solution:

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112. Accounts payable at the end of December would be:
A) $231,000 rs e
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B) $96,000
C) $135,000
D) $240,000
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Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting
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LO: 10 Level: Hard

Solution:
Cost of
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Sales Goods Sold

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November...................................................... $350,000 $262,500

December....................................................... $320,000 $240,000
January.......................................................... $300,000 $225,000
Purchases in December = ($225,000 × 60%) + ($240,000 × 40%)
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= $135,000 + $96,000 = $231,000

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 113. Retained earnings at the end of December would be:
A) $289,600
B) $276,200
C) $236,400
D) $203,500

Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting
LO: 10 Level: Hard

Solution:

Net income calculation for November:

Net sales ($350,000 × 98%).................................................... $343,000
Less cost of goods sold ($350,000 × 75%).............................. 262,500
Gross margin.......................................................................... 80,500

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Less depreciation expense....................................................... 16,000

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Less selling and administrative expense.................................. 24,700

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Net income............................................................................. $ 39,800

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Net income calculation for December:

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Net sales [$320,000 × (100% − 2%)]...................................... $313,600
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Less cost of goods sold ($320,000 × 75%).............................. 240,000
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Gross margin.......................................................................... 73,600
Less depreciation expense....................................................... 16,000
Less selling and administrative expense.................................. 24,700
Net income............................................................................. $ 32,900
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Retained earnings in December = Retained earnings in October + Net income in

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November + Net income in December = $203,500 + $39,800 + $32,900 = $276,200

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