Use the following to answer questions 10 and 11. Kelly Company is a retail sporting goods store that uses accrual accounting for its records. Facts regarding Kellys operations are as follows: Sales are budgeted at $220,000 for December Year 1 and $200,000 for January Year 2 Collections are expected to be 60% in the month of sale and 38% in the month following the sale (Hint: Bad Debts expense) Gross margin is 25% of sales A total of 80% of merchandise held for resale is purchased in the month prior to the month of sale and 20% is purchased in the month of sale. Payment for merchandise is made in the month following the purchase. Other expected monthly expenses to be paid in cash are $22,600 Annual depreciation is $216,000 Below is Kellys statement of financial position at November 30, Year 1: Assets Liabilities Cash $22,000 Accounts Payable $162,000 Accounts receivable (net of $4,000 for allowance for bad uncollectible accounts) $76,000 Common stock $800,000 Inventory $132,000 Retained Earnings $138,000 Plant, property, and equipment (net of $680,000 accumulated depreciation) $870,000 Total liabilities and stockholders equity $1,100,000 Total assets $1,100,000

10. Kellys pro forma income (loss) before taxes for December Year 1 is: A) $32,000 B) $28,000 C) $10,000 D) Some amount other than those given.

11. Kellys projected balance in accounts payable on December 31, Year 1, is: A) $162,000 B) $204,000 C) $153,000 D) Some amount other than those given.