Dilom Farm Supply is located in a small town in the rural west. Data regarding the store's operations follow:
Sales are budgeted at $260,000 for November, $230,000 for December, and $210,000 for January.
Collections are expected to be 55% in the month of sale, 40% in the month following the sale, and 5% uncollectible.
The cost of goods sold is 80% of sales.
The company purchases 50% of its merchandise in the month prior to the month of sale and 50% 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 $21,700.
Monthly depreciation is $17,000.
Ignore taxes.
-The net income (loss) for December would be:

Question

Dilom Farm Supply is located in a small town in the rural west. Data regarding the store's operations follow:
 Sales are budgeted at $260,000 for November, $230,000 for December, and $210,000 for January.
  Collections are expected to be 55% in the month of sale, 40% in the month following the sale, and 5% uncollectible.
  The cost of goods sold is 80% of sales.
  The company purchases 50% of its merchandise in the month prior to the month of sale and 50% 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 $21,700.
  Monthly depreciation is $17,000.
  Ignore taxes. 
-The net income (loss) for December would be:

Quizplus · Accepted Answer

Step 1: Calculate the cost of goods sold for December
Sales for December: $230,000
Cost of goods sold (80% of sales): $184,000

Step 2: Calculate the purchases for November and December
Purchases in November (50% of December sales): $115,000
Purchases in December (50% of December sales): $115,000

Step 3: Calculate total cash collections for November and December sales
Collections for November sales: 55% x $260,000 = $143,000
Collections for December sales: (40% x $260,000) + (55% x $230,000) = $161,500

Step 4: Calculate total cash disbursements for November and December
Cash disbursements for merchandise purchases in November: $115,000
Cash disbursements for merchandise purchases in December: $115,000
Other monthly expenses: $21,700
Monthly depreciation: $17,000
Total cash disbursements: $268,700

Step 5: Calculate net income or loss for December
Net income = Total cash collections - Total cash disbursements
Net income = $161,500 - $268,700
Net income = ($107,200)
Therefore, the net income (loss) for December is ($4,200).

Dilom Farm Supply Is Located in a Small Town in the Rural