The following information relates to Mega Corporation: * All sales are on account and are budgeted as follows: February, $350,000; March, $360,000; and April, $400,000. Mega collects 70% of its sales in the month of sale and 30% in the following month.* Cost of goods sold averages 60% of sales. Purchases total 65% of the following month's sales and are paid in the month following acquisition.* Cash operating expenses total $60,000 per month and are paid when incurred. Monthly depreciation amounts to $18,000.* Selected amounts taken from the January 31 balance sheet were: accounts receivable, $115,000; plant and equipment (net), $107,000; and retained earnings, $85,000.Required: (NOTE: Ignore income taxes in answering these questions).A. Prepare a budgeted income statement that
summarizes activity for the two months ended March 31, 20x1.B. Compute the amounts that would appear on the March 31 balance sheet for accounts receivable, plant and equipment (net), and retained earnings.
What will be an ideal response?
A.
| Income Statement for the Two Months Ended March 31, 20x1 |
| Sales revenue ($350,000 + $360,000) | ? | $710,000 |
| Cost of goods sold ($710,000 × 60%) | ? | 426,000 |
| Gross margin | ? | $284,000 |
| Operating expenses: | ? | ? |
| Cash operating expenses ($60,000 × 2) | 120,000 | ? |
| Depreciation ($18,000 × 2) | 36,000 | 156,000 |
| Net income | ? | $128,000 |
B.
Accounts receivable: $115,000 - $115,000 + $350,000 - ($350,000 × 70%) + $360,000 - ($350,000 × 30%) - ($360,000 × 70%) = $108,000
Plant and equipment (net): $107,000 - $18,000 - $18,000 = $71,000
Retained earnings: $85,000 + $128,000 = $213,000
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