Kelly Company is a retail sporting goods store that uses accrual accounting for its records. Facts regarding

Kelly's operations are as follows:

Sales are budgeted at $220,000 for December year 1 and $200,000 for January year 2.

Collections are expected to be 60% in the month of sale and 38% in the month following the sale.

Gross margin is 25% of sales.

A total of 80% of the merchandise held for resale is purchased in the month prior to the month of sale and 20% is purchased in the month of sale. Payment for merchandise is made in the month following the purchase.

Other expected monthly expenses to be paid in cash are $22,600.

Annual depreciation is $216,000.

Below is Kelly Company's statement of financial position at November 30, year 1.

Assets   

Cash                                                                            $22,000

Accounts receivable

76,000

(net of $4,000 allowance for uncollectible accounts)

Inventory                                                                        132,000

Property, plant, and equipment (net of $680,000 accumulated deprecation)      870,000

Total assets                                                                   $1,100,000

Liabilities and Stockholders' Equity   

Accounts payable                                                               $162,000

Common stock                                                                   800,000

Retained earnings                                                                138,000

Total liabilities and stockholders' equity                                        $1,100,000

The budgeted income (loss) before income taxes for December year 1 is

A. Some amount other than those given.

B. $28,000.

C. $10,000.

D. $32,400.