A. Create income statement, balance statement, and statement of cash flow.
B. Provide recommendation to the controller.
January February March Sales $450,000 $550,000 $700,000
Manufacturing costs $260,000 $330,000 $420,000
Selling and administrative expenses $100,000 $140,000 $ 45,000
Capital expenditures (information is not given)
The company expects to sell about 20% of its merchandise for cash. Of sales on account, 75% are expected to be collected in full in the month following the sale and the remainder for the following month. Depreciation, insurance, and property tax expense represent $40,000 of the estimated monthly manufacturing costs. The annual insurance premium is paid in June, and the annual property taxes are paid in October. Of the remainder of the manufacturing costs, 90% are expected to be paid in the month in which they are incurred and the balance in the following month. All sales and administrative expenses are paid in the month incurred.
Current assets on January 1 include cash of $45,000, marketable securities of $65,000, and accounts receivable of $290,000 ($240,000 from December sales and $50,000 from November sales). Sales on account in November and December were $200,000 and $240,000, respectively. Current liabilities as of January 1 include a $50,000, 8%, 90-day note payable due March 20 and $18,000 of accounts payable incurred in December for manufacturing costs. All selling and administrative expenses are paid in cash in the period they are incurred. It is expected that $20,000 in dividends will be received in January. An estimated income tax payment of $15,000 will be made in February. Shoe Mart's regular quarterly dividend of $5,000 is expected to be declared in February and paid in March. Management desires to maintain a minimum cash balance of $35,000.