Question

Dilly Farm Supply is located in a small town in the rural west. Data regarding the store's operations follow:

• Sales are budgeted at $281,000 for November, $321,000 for December, and $212,000 for January.
• Collections are expected to be 75% in the month of sale and 25% in the month following the sale.
• The cost of goods sold is 75% of sales.
• The company desires to have an ending merchandise inventory at the end of each month equal to 90% of the next 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 $20,100.
• Monthly depreciation is $22,000.
• Ignore taxes.

Balance Sheet October 31
Assets
Cash	$	29,000
Accounts receivable		78,000
Merchandise inventory		189,675
Property, plant and equipment, net of $624,000 accumulated depreciation		1,006,000
Total assets	$	1,302,675
Liabilities and Stockholders' Equity
Accounts payable	$	241,000
Common stock		742,000
Retained earnings		319,675
Total liabilities and stockholders' equity	$	1,302,675

Retained earnings at the end of December would be:

Garrison 16e Rechecks 2017-10-03, 2017-10-31

Multiple Choice

• $361,675

• $319,675

• $385,975

• $364,875

Answer 1

Retained earnings at the beginning		$   319,675
Add: net income
Sales ($281,000+321,000)	$   602,000
Less: Cost of goods sold ($602,000*75%)	$   451,500
Less: Other expenses ($20,100*2)	$     40,200
Less: Depreciation expense ($22,000*2)	$     44,000
Net income		$     66,300
Retained earnings at Dec 31		$   385,975

Answer is C. $385,975

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