We are Preparing the operating budget for the fourth quarter of 2009: Pro Forma
ID: 2481449 • Letter: W
Question
We are Preparing the operating budget for the fourth quarter of 2009:
Pro Forma Income Statement
October
November
December
4th Quarter
Revenues
60,000
COGS
45,000
Gross margin
15,000
General & Commission
10,800
Adminstration
2,500
Depreciation
900
Sales discounts
360
Bad debt expense
240
Interest expense
40
Net Income
160
Pro Forma Balance Sheet
Cash
$X,XXX
A/R (gross)
$XX,XXX
Less: AFDA*
XXXX
XX,XXX
Inventory
XX,XXX
Net current assets
XX,XXX
Fixed assets
XXX,XXX
Less: depreciation
X,XXX
XXX,XXX
Total assets
$XXX,XXX
Accounts payable
XX,XXX
Notes payable (line of credit)
X,XXX
Interest payable
XX
Current liabilities
XX,XXX
Stockholders' Equity:
Common stock
XXX,XXX
Retained earnings
XX,XXX
Total S/Equity
XXX,XXX
Total Liab. and S/E
$XXX,XXX
FILL THE BLANK WITH THE INFORMATION PROVIDES BELOW:
Current account data on September 30,2009 ( the end of the third quarter):
Account
Debit
Credit
Cash
8,000
Account Receivable
20,000
Inventory
36,000
Building and equipment, net of depreciation
120,000
Accounts payable
21,750
Common stock
150,000
Retained Earnings
12,250
Total
184,000
184,000
Monthly fourth quarter sales estimates, along with the current month's actual sales and forecast for January 2010:
Month
Sales
September (actual)
50,000
October
60,000
November
72,000
December
90,000
January 2010
48,000
1) The company prices its product to ensure 25% gross profit margin on sales. the company met that margin through the first three-quarters of 2009.
2) 60% of customers pay in cash ( Those customers receive a 1% discount on the invoice price)
+ Account for 1% cash discount as part of operating expenses (rather than as the more technically correct reduction of gross sales) when constructing the pro forma income statements in order to be consistent with the bullet point above.
3) 40% of customers pay on account
4) Credit sales terms are n/2EOM, credit terms requiring payment by the end of the month following purchase ( IF we make a credit sale in October, they will pay us by the end of November)
5) Company typically write off 1% of credit customer accounts as uncollectible.
6) No writes offs were currently pending as September 30 and none were expected to originate from third quarter activity.
7) The company has a clean slate for the fourth quarter budget.
The Company Will collect all of the 20,000 accounts receivable balance at Sep 30 by the end of October
8) Bad debt expense and the allowance for doubtful accounts have 0 balance at Sep 30, The company need to reestablish them for fourth quarter bad debts. The company will write offs 2009 fourth quarter bad debts sometime during 2010.
Third quarter monthly expense data:
Monthly Expense Item
Amount
Administration
2,500
General
6% of sales
Commission
12% of sales
Depreciation
850
9) the company pays its operating expenses in the month it accrue them
10) The company managed inventory so that its ending balance sheet equaled 80% of the next month's COGs.
11) Account payable clerk pays one-half of each month’s inventory cost in the month of acquisition, and the remaining 50% in the following month
12) Cash purchase of 1,500 for Scanning devices in early October ( The firm will depreciate this equipment over thirty months on the straight line basis
13) Insist that Maintain an ending monthly cash balance of 4,000 to remain financially flexible
14) The company has an open line of credit with its banking partner to ensure that it can meet its cash balance goal (12% annual interest rate for all short-term borrowings.)
15) Financing must take place at the beginning of the month in thousand dollar multiples. Repayments of borrowing must also occur in thousand dollar increments, and the bank only accepts interest payments when the company repays principal.
Pro Forma Income Statement
October
November
December
4th Quarter
Revenues
60,000
COGS
45,000
Gross margin
15,000
General & Commission
10,800
Adminstration
2,500
Depreciation
900
Sales discounts
360
Bad debt expense
240
Interest expense
40
Net Income
160
Pro Forma Balance Sheet
Cash
$X,XXX
A/R (gross)
$XX,XXX
Less: AFDA*
XXXX
XX,XXX
Inventory
XX,XXX
Net current assets
XX,XXX
Fixed assets
XXX,XXX
Less: depreciation
X,XXX
XXX,XXX
Total assets
$XXX,XXX
Accounts payable
XX,XXX
Notes payable (line of credit)
X,XXX
Interest payable
XX
Current liabilities
XX,XXX
Stockholders' Equity:
Common stock
XXX,XXX
Retained earnings
XX,XXX
Total S/Equity
XXX,XXX
Total Liab. and S/E
$XXX,XXX
Explanation / Answer
OCTOBER NOVEMBER DECEMBER REVENUE 60000 72000 90000 COGS 45000 54000 67500 GROSS MARGIN 15000 18000 22500 GEN. & COMMISSION 10800 12960 16200 ADMINISTRATION 2500 2500 2500 DEPRECIATION 900 850 850 SALES DISCOUNT 360 432 540 BAD DEBTS 240 288 360 INTEREST EXPENSE 40 40 40 NET INCOME 160 930 2010
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