Question

Carver Lumber sells lumber and general building supplies to building contractors in a medium-sized town in Montana. Data regarding the store's operations follow: Sales are budgeted at $350,000 for November, $320,000 for December, and $300,000 for January. Collections are expected to be 90% in the month of sale and 10% in the month following the sale. The cost of goods sold is 75% of sales. The company desires to have an ending merchandise inventory equal to 60% of the following month's cost of goods sold. Payment for merchandise is made in the month following the purchase. Other monthly expenses to be paid in cash are $24,700. Monthly depreciation is $16,000. Ignore taxes. Balance Sheet October 31 Assets Cash $ 19,000 Accounts receivable 77,000 Inventory 157,500 Property, plant and equipment, net of $502,000 accumulated depreciation 1,002,000 Total assets $ 1,255,500 Liabilities and Stockholders’ Equity Accounts payable $ 272,000 Common stock 780,000 Retained earnings 203,500 Total liabilities and stockholders’ equity $ 1,255,500 The net income for December would be: Multiple Choice $39,300 $42,300 $32,900 $55,300

Answer 1

Answer:

$39,300

Explanation:

The computation of the net income is shown below:

= Sales - cost of good sold - other monthly expenses - depreciation expense

= $320,000 - $240,000 - $24,700 - $16,000

= $39,300

The cost of goods sold is computed below:

= December sales × cost of goods sold percentage

= $320,000 × 75%  

= $240,000

All other information which is given is not relevant. Hence, ignored it