Problem: Carver Lumber sells lumber and general building supplies to building contractors in a medium-sized town in Montana. Data regarding the store's operations follow:
- Sales are budgeted at $450,000 for November, $380,000 for December, and $280,000 for January.
- Collections are expected to be 87% in the month of sale, 8% in the month following the sale, and 5% uncollectible.
- The cost of goods sold is 69% of sales.
- The company purchases 60% of its merchandise in the month prior to the month of sale and 40% 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 $14,700.
- Monthly depreciation is $10,000.
- Ignore taxes.
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Statement of Financial Position
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October 31
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Assets:
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Cash
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$ 15,000
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Accounts receivable (net of allowance for uncollectible accounts)
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85,000
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Inventory
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157,500
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Property, plant and equipment (net of $512,000 accumulated depreciation)
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1,012,000
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Total assets
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$1,269,500
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Liabilities and Stockholders' Equity:
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Accounts payable
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$ 262,000
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Common stock
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680,000
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Retained earnings
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327,500
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Total liabilities and stockholders' equity
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$1,007,500
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The cash balance at the end of December would be:
- $461,880
- $245,800
- $284,800
- $285,180