Shorty€™s Convenience Stores€™ income statement for the year ended December 31, 2013, and its balance sheet as of December 31, 2013, reported the following:

The business is organized as a proprietorship, so it pays no corporate income tax. The owner is budgeting for 2014. He expects sales and cost of goods sold to increase by 5%. To meet customer demand, ending inventory will need to be $86,000 at December 31, 2014. The owner hopes to earn a net income of $178,000 next year.

Requirements
1. One of the most important decisions a manager makes is the amount of inventory to purchase. Show how to determine the amount of inventory to purchase in 2014.
2. Prepare the store€™s budgeted income statement for 2014 to reach the target net income of $178,000. To reach this goal, operating expenses must decrease by$8,750.

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A1 A1 Shorty's Convenience Stores Shorty's Convenience Stores Income Statement Balance Sheet December 31, 2013 Assets Year Ended December 31, 2013 Sales Cost of sales Gross profit Operating expenses Net income 986,000 LIabilties and Capital 265,000 109,000 156,000 Cash Inventories Land and 43,000 Accounts payable 64,000 Note payable 32,000 185,000 217,000 157,000 Total liabilities buildings, net 267,000 Owner, capital Total liabilities Total assets 374,000 and capital S374,000