Ricky’s Convenience Stores’ income statement for the year ended December 31, 2017, and its balance sheet as of December 31, 2017, are as follows:

The business is organized as a proprietorship, so it pays no corporate income tax. The owner is budgeting for 2018 and expects sales and cost of goods sold to increase by 7%. To meet customer demand, ending inventory will need to be $80,000 at December 31, 2018. The owner hopes to earn a net income of $152,000 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 2018.

2. Prepare the store’s budgeted income statement for 2018 to reach the target net income of $152,000. To reach this goal, operating expenses must decrease by $10,480.

Transcribed Image Text:

A1 A1 Ricky's Convenience Stores Balance Sheet December 31, 2017 Assets Ricky's Convenience Stores İncome Statement Year Ended December 31, 2017 Liabilities and Capital $ 39,000 Accounts payable $ 955,000 719,000 Sales 3 Cost of sales 4 Gross profit 5 Operating expenses 6 Net income $ 30,000 Cash 4 Inventories Land and 67,000 Note payable 236,000 111,000 $ 125,000 Total liabilities 265,000 Owner, capital Total liabilities and capital 225,000 buildings, net 146,000 $ 371,000 $ 371,000 8 Total assets 12345n O7 0 9