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    Budgeted Net Income or Loss

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    Sipan Retail Company was recently created with a beginning cash balance of 12,000. The owner expects the following for the first month of operations:

    Cash sales to customers 8,000
    Sales on account to customers 30,000
    Cash collected from account customers 12,000
    Cost of merchandise purchased 35,000
    Cash paid for merchandise purchased 24,500
    Cost of merchandise sold 26,600
    Cash paid for display cases 9,600
    Selling and administrative expenses 4,000

    The display cases above were purchased at the beginning of the month and are being depreciated at a rate of 200 per month. This amount is included in the selling and administrative expenses figure above. All other selling and administrative expenses are paid as incurred. Sipan wants to maintain a cash balance of 10,000. Any amount below this can be borrowed from a local bank as needed in increments of 1,000. All borrowings are made at month end.
    Reference: 9-16

    In Sipan's budgeted income statement for this first month, what will net income (loss) be for this first month?


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    Solution Preview

    Sales are
    Cash sales to customers 8,000
    Sales on account to customers 30,000
    Total Sales = ...

    Solution Summary

    The solution explains the preparation of a budgeted income statement to calculate the net income or loss.