NAME: 1. Take Home Problem assigned 11/07/2017. Turn in at end of exam on 11/16/
ID: 2572000 • Letter: N
Question
NAME: 1. Take Home Problem assigned 11/07/2017. Turn in at end of exam on 11/16/2017-25pts Garden Sales, Inc. December 31, 2016 26,400 Cash Accounts Receivable Inventory Prepaid Rent 60,000 112,500 66,000 12,000 Accounts Payable Working Capital Line Note Payable Accrued Liabilities 50,000 $200,000 $ 774,100 900,000 Common Stock Prop, Plant & Equip Accum Depr Retained Earnings Net PP&E; $ 800,000 Total Assets 1,050,500 $ 1,050,500 You are the Business Manager of Garden Sales, Inc and the bank has asked you to prepare a cash and earnings budget/forecast for the next quarter. After your discussion with the various departments, you have come up with the following assumptions .November 2016 and December 2016 sales were $100,000, each month . Sales for the following four months will increase $10,000 each month, beginning Jan through April. Cost of Sales represents 60% of sales Operating Expenses are 15% of sales, exclusive of Depreciation Depreciation Expense is $7,500, per month and prepaid rent is amortized at $2,000 per month Of the month's sales, 25% is collected as cash with the remaining placed on customer's account. Customer's accounts are usually paid off, over a 2-month period (50% per month), beginning the month following the sale. . · .A customer just informed you that they filed bankruptcy therefore, their $15,000 invoice from November A/R will have to be written off to bad debt expense in January 2017 The company purchases 100% of the next month's cost of sales. They pay for 60%, in cash, at the time of purchase and pay the remaining 40% in the following month. The Dec A/P will be paid in full, in Jan In March, the company is planning on replacing an outdated machine. The new machine will cost $50,000. The old machine originally cost $30,000, has a with a Net Book Value of $10,000 and will be sold for $7,500 · . The Company does not pay or accrue for taxes until the end of December .The Company plans to pay a cash dividend of $25,000 at the end of March. Assume all operating expenses incurred during the month are paid, in cash, during the same month incurred The minimum ending cash balance required according to the bank agreement is $70,000, beginning Jan 31, 2017 . The Note Payable requires a quarterly payment of $10,000, plus interest of $500, at the end of March. No interest on this note is Accrued/Expensed until interest is paid A working capital line of credit is available, up to $100,000, and if needed, money is taken out at the beginning of the month. Interest of 1%, per month is accrued/expensed in the month the money is received. Interest is paid on the working capital line when principal payments are paid to the bank. Any excess cash estimated at the end of the month will be used to pay the working capital line balance and associated interest at the end of the month. Target Figures: Total Assets 03/31 is $1,120,000 Total Interest Exp Q1 is $711.72 1. Prepare a Cash Budget/Forecast for Jan, Feb and March, 2017 (9pts) 2. Prepare an Income Statement for the 3-month period ending March 2017 (8 pts) 3. Prepare a Balance Sheet as of March 31, 2017 (8 pts) Ret. Earn. 03/31/2017 is $791,88.28Explanation / Answer
1 Cash Budget Forecast for Jan-March 17 Jan Feb Mar Total Remarks Cash Receipts Cash Sales $27,500 $30,000 $32,500 $90,000 Working 1 Credit Collection $60,000 $78,750 $86,250 $225,000 Working 1 Old Machine Sale Value $7,500 $7,500 $87,500 $108,750 $126,250 $322,500 Cash Payments Cash Purchase $43,200 $46,800 $50,400 $140,400 Working 2 Credit Purchase $26,400 $28,800 $31,200 $86,400 Working 2 Machine Purchase $50,000 $50,000 As given Cash Dividend Payment $25,000 $25,000 As given Payment for Notes payable with Interest $10,500 $10,500 As given Operating Expense Paid $16,500 $18,000 $19,500 $54,000 Working 3 Interest on Working Capital Line $86 $86 1% of Working Capital Line $86,100 $93,686 $186,600 $366,386 Net Cash generated $1,400 $15,064 ($60,350) ($43,886) Opening Balance 60,000 $61,400 $76,464 $60,000 Closing Balance $61,400 $76,464 $16,114 $16,114 Minimum Balance $70,000 $70,000 $70,000 $70,000 Working Capital Line Borrowing / repayment $8,600 ($6,464) $53,886 $53,886 Final Closing Balance $70,000 $70,000 $70,000 $70,000 Nov Dec Jan Feb Mar Apr Remarks Working 1 Sales $100,000 $100,000 $110,000 $120,000 $130,000 $140,000 Sales to increase 10000 from Jan Cash Sales $25,000 $25,000 $27,500 $30,000 $32,500 $35,000 25% of Sales Credit Sales $75,000 $75,000 $82,500 $90,000 $97,500 $105,000 75% of Sales Customer's Collection 50% in 1st Month after sale $37,500 $37,500 $41,250 $45,000 $48,750 50% in 2nd month after sale $37,500 $37,500 $41,250 $45,000 Less - Bad Debts ($15,000) Working 2 Cost of Sales $60,000 $60,000 $66,000 $72,000 $78,000 $84,000 60% of Sales Purchase $60,000 $66,000 $72,000 $78,000 $84,000 100% of Cost of sale of next month Cash Purchase $36,000 $39,600 $43,200 $46,800 $50,400 $0 60% of Purchase Credit Purchase Payment $24,000 $26,400 $28,800 $31,200 $33,600 40% of Prev month Purchase Working 3 Machine Purchase $50,000 Old Machine Sale Value $7,500 Cash Dividend Paid $25,000 Working 3 Operating Expesne paid $15,000 $15,000 $16,500 $18,000 $19,500 $21,000 15% of Sales, paid in same month Notes Payable payment $10,000 Inerest on Notes Payable $500 Minimum ending Cash balance $70,000 $70,000 $70,000 $70,000 Working Capital Line up to 100000 Iterest at 1% in month of recept if money interest is paid when money is returned Excess Cash will be used to pay working capital line Depreciation $7,500 $7,500 $7,500 $7,500 $7,500 $7,500 As given Prepaid Rent $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 As given 2 Income Statement Jan Feb Mar Total Sales $110,000 $120,000 $130,000 $360,000 Cost of Sales $66,000 $72,000 $78,000 $216,000 Gross Profit $44,000 $48,000 $52,000 $144,000 Operating Expense $16,500 $18,000 $19,500 $54,000 Depreciation $7,500 $7,500 $7,500 $22,500 Prepaid Rent Amortisation $2,000 $2,000 $2,000 $6,000 Interest on Notes Payable $500 $500 Interest on Working Capital Line $86 $21 $560 $668 Bad Debts $15,000 $15,000 Loss on Sale of Asset $2,500 $2,500 Net Income $2,914 $20,479 $19,440 $42,832 Blance sheet as on 31.03.2017 Assets Amount Liabilities Amount Cash 70,000 Accounts Payable 33,600 Account Receivable 142,500 Working Capital Line 53,886 Inventory 84,000 Notes Payable 40,000 Prepaid Rent 6,000 Accrued Liabilities 582 Property, Plant & Equipment 920,000 Less - Accum Depreciation (102,500) Common Stock 200,000 Retained Earnings 774,100 Profit for the period 42,832 Less: Cash Dividend Paid (25,000) 1,120,000 1,120,000 - As on Dec 31 Sold in March Bal in March Property, Plant & Equipment 900,000 30000 920,000 Less - Accum Depreciation (100,000) -20000 (102,500) Machine Purchased 50000 Depreciation -22500
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