Question:
Bernard Creighton is the controller for Creighton Hardware Store. INputting together the cash budget for thr fourth quarter of the year, he has assembled the following data.
a. Sales
July (actual) $100,000
August (actual) $120,000
September (estimated) $90,000
October (estimated) $100,000
November (estimated) $135,000
December (estimated) $150,000
b. Each month, 20 percent of sales are foe cash, and 80 percent are on credit. The colection pattern for credit sales is 20 percent in the month of sale, 50 percent in the following month, and 30 percent in the second month following the sale.
c. Each month, the ending inventory exactly equals 40 percent of the cost of the next month's sales. The markup on goods is 33.33 percent of cost.
d. Inventory purchases are paid for in the month following purchase.
e. Recuring monthly expenses are as follows:
Salaries and wages $10,000
Depreciaition on plant ans equipment $4,000
Utilities $1,000
Other $1,700
f. Property taxes of $15,000 are due and payable on September 15.
g. Advertising fees of $6,000 must be paid on October 20.
h. A lease on a new storage facility is scheduled to begin on November 2. Monthly payments are $5,000.
i. The company has a policy to maintain a minimum cash balance of $10,000. If neccessary, it will borrow to meet its short-term needs. All borrowing is done at the beginning of the month. All payments on principal and interest are made at the end of the month. The annual interest rate is 9 percent. The company must borrow in multiples of $1,000.
j. A partially completed balance sheet as of Agust 31 is given below. (Accounts payable is for inventory purchases only.)
Assets Liabilities & Owners Equity
Cash $ ?
Accounts Recieveable $ ?
Inventory $ ?
Plant and equipment $431,750
Accounts payable $?
Common stock $200,000
Retained earnings $268,750
Totals $? $?
Required:
1. Complete the balance sheet given in part (j).
2. Bernard wants to see how the company is doing prior to starting the month of December. Prepare a cash budget for the months of September, October, and November and for the three month period in total (the period begins in September
Provide a supporting schedule of cash collections.
3. Prepare a pro forma balance sheet as of November 30.