Capes Corporation is a wholesaler of industrial goods. Data regarding the store's operations follow:•Sales are budgeted at $390,000 for November, $360,000 for December, and $340,000 for January. •Collections are expected to be 85% in the month of sale and 15% in the month following the sale. •The cost of goods sold is 80% of sales. •The company desires an ending merchandise inventory equal to 40% of the cost of goods sold in the following month. Payment for merchandise is made in the month following the purchase. •The November beginning balance in the accounts receivable account is $77,000. •The November beginning balance in the accounts payable account is $320,000. Required:a.Prepare a Schedule of Expected Cash Collections for November and December.b.Prepare a
Merchandise Purchases Budget for November and December.
What will be an ideal response?
a.
| November | December | |||||
| Sales | $ | 390,000 | $ | 360,000 | ||
| Schedule of Expected Cash Collections | ||||||
| Accounts receivable | $ | 77,000 | ||||
| November sales (85% × $390,000; 15% × $390,000) | 331,500 | $ | 58,500 | |||
| December sales (85% × $360,000) | 306,000 | |||||
| Total cash collections | $ | 408,500 | $ | 364,500 | ||
| Merchandise Purchases Budget | November | December | ||||
| Cost of goods sold (80% × $390,000; 80% × $360,000) | $ | 312,000 | $ | 288,000 | ||
| Add desired ending merchandise inventory (40% × $288,000; 40% × 80% × $340,000) | 115,200 | 108,800 | ||||
| Total needs | 427,200 | 396,800 | ||||
| Less beginning merchandise inventory (40% × $312,000; 40% × $288,000) | 124,800 | 115,200 | ||||
| Required purchases | $ | 302,400 | $ | 281,600 | ||
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