Reference: 07-02
Justin's Plant Store, a Retailer, Started Operations on January

question 56

Multiple Choice

Reference: 07-02
Justin's Plant Store, a retailer, started operations on January 1. On that date, the only assets were $16,000 in cash and $3,500 in merchandise inventory. For purposes of budget preparation, assume that the company's cost of goods sold is 60% of sales. Expected sales for the first four months appear below. $$\begin{array} { | l | l | } \hline & \text { Expected Sales } \\\hline \text { January } & \$ 10,000 \\\hline \text { February } & 24,000 \\\hline \text { March } & 16,000 \\\hline \text { April } & 25,000 \\\hline\end{array}$$ The company desires that the merchandise inventory on hand at the end of each month be equal to 50% of the
next month's merchandise sales (stated at cost) . All purchases of merchandise inventory must be paid in the month of purchase. Sixty percent of all sales should be for cash; the balance will be on credit. Seventy-five percent of
the credit sales should be collected in the month following the month of sale, with the balance collected in the following month. Variable operating expenses should be 10% of sales and fixed expenses (all depreciation) should be $3,000 per month. Cash payments for the variable operating expenses are made during the month the
expenses are incurred.
-The accounts receivable balance that would appear in the March 31 budgeted balance sheet would be:

• A)$16,000.
• B)$12,400.
• C)$15,000.
• D)$8,800.

---

Definitions:

Expiratory Reserve

The additional amount of air that can be expelled from the lungs after a normal exhalation.

Internal Nares

The internal nares, also known as the choanae, are openings at the back of the nasal cavity leading into the pharynx, facilitating airflow from the nose to the throat.

Nasal Cavity

The hollow space within the nose through which air flows, filtered, warmed, and humidified, also housing olfactory receptors.

Soft Palate

The soft tissue constituting the back of the roof of the mouth, separating the oral cavity from the nasal passages.