Explanation and Answers

Sports Fanatic Company is a retail sporting goods store that uses accrual accounting for its records. Information on Sports Fanatic's operations is as follows: 1. 2. 3. 4. The store has budgeted sales at $220,000 for January and $200,000 for February. It expects collections to be 60% in the month of sale and 38% in the month following the sale. It expects 2% of sales to be uncollectible. Gross margin is 25% of sales. It purchases a total of 80% of the merchandise for resale in the month before the month of sale and 20% in the month of sale. It makes payments for merchandise in the month after it purchases it. Other expected monthly expenses to be paid in cash amount to $22,600. Annual depreciation is $216,000. Sports Fanatic's balance sheet at the close of business on December 31 follows. 5. 6. 7. SPORTS FANATIC COMPANY Balance Sheet December 31 Assets Cash Accounts receivable (net of $4,000 allowance for uncollectible accounts) Inventory Property, plant, and equipment (net of $680,000 of accumulated depreciation) Total assets Liabilities and Shareholders' Equity Accounts payable Common shares Retained earnings Total liabilities and shareholders' equity $22,000 76,000 132,000 870,000 $1,100,000 $162,000 800,000 138,000 $1,100,000 Prepare the budgeted income statement for January. SPORTS FANATIC COMPANY Pro Forma Income Statement For the Month of January Prepare the cash budget for January. (Do not leave any answer field blank. Enter o for amounts.) SPORTS FANATIC COMPANY Cash Budget For the Month of January Prepare the budgeted balance sheet for January. (List Current Assets in order of liquidity.) SPORTS FANATIC COMPANY Pro Forma Balance Sheet As at January 31 Assets Liabilities and Shareholders' Equity