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Budgeted Net Income or Loss

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?

(1,000)
7,400
(2,000)
9,500

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.

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