Solomon Company is a retail company that specializes in selling outdoor camping

Question

Solomon Company is a retail company that specializes in selling outdoor camping equipment. The company is considering opening a new store on October 1, 2019. The company president formed a planning committee to prepare a master budget for the first three months of operation. As budget coordinator, you have been assigned the following tasks:

October sales are estimated to be $310,000, of which 45 percent will be cash and 55 percent will be credit. The company expects sales to increase at the rate of 20 percent per month. Prepare a sales budget.

The company expects to collect 100 percent of the accounts receivable generated by credit sales in the month following the sale. Prepare a schedule of cash receipts.

The cost of goods sold is 70 percent of sales. The company desires to maintain a minimum ending inventory equal to 20 percent of the next month’s cost of goods sold. However, ending inventory of December is expected to be $13,300. Assume that all purchases are made on account. Prepare an inventory purchases budget.

The company pays 80 percent of accounts payable in the month of purchase and the remaining 20 percent in the following month. Prepare a cash payments budget for inventory purchases.

Budgeted selling and administrative expenses per month follow:

*The capital expenditures budget indicates that Solomon will spend $160,200 on October 1 for store fixtures, which are expected to have a $33,000 salvage value and a two-year (24-month) useful life.

Prepare a pro forma balance sheet at the end of the quarter. (Amounts to be deducted should be indicated by a minus sign.)

Prepare a pro forma income statement for the quarter.

Prepare a pro forma balance sheet at the end of the quarter.

Prepare a pro forma statement of cash flows for the quarter.

Prepare a pro forma statement of cash flows for the quarter. (Amounts to be deducted should be indicated by a minus sign.)

Salary expense (fixed) $ 19,300 Sales commissions 4 % of Sales Supplies expense 2 % of Sales Utilities (fixed) $ 2,700 Depreciation on store fixtures (fixed)* $ 5,300 Rent (fixed) $ 6,100 Miscellaneous (fixed) $ 2,500

Explanation / Answer

SInce, there are multiple sub-parts to the question, I have answered the first four.

_____

Part 1)

The sales budget is prepared as below:

______

Part 2)

The schedule of cash receipts is given as follows:

______

Part 3)

The inventory purchases budget is prepared as follows:

______

Part 4)

The cash payments budget is given as below:

Sales Budget Sales October November December Total Cash Sales 139,500 (310,000*45%) 167,400 [139,500*(1+20%)] 200,880 [167,400*(1+20%)] 507,780 Credit Sales 170,500 (310,000*55) 204,600 [170,500*(1+20%)] 245,520 [204,600*(1+20%)] 620,620 Total Budgeted Sales $310,000 $372,000 $446,400 $1,128,400

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