Hannah & Maggie are independent recording artists who manufacture all their CDs by hand whole sale. In December Hannah found a Neumann record cutting machine on sale for $25,000. The machine can be used to transfer digital music to vinyl records (LPs).
Hannah and Maggie think their new album would sound amazing (and sell well) as an LP, but they need a loan to purchase the machine. A local bank is agreeable, but requires both current (2013) and budgeted (3 months in 2014) financial statements.
|
Balance Sheet
|
|
December 2013 &
|
|
December 31, 2013
|
|
2014 Sales Forecast
|
|
Cash
|
$19,200
|
|
January
|
29,600
|
|
A/R
|
22,000
|
|
February
|
34,400
|
|
Inventory @1/1/14
|
6,000
|
|
March
|
38,000
|
|
Fixed Assets
|
28,000
|
|
April
|
43,200
|
|
Total Assets
|
$75,200
|
|
May
|
31,200
|
|
|
|
|
|
|
A/P Purchase - Dec
|
$6,400
|
|
|
|
|
Accrued Credit FeesDec
|
550
|
|
|
|
|
Common Stock
|
16,000
|
|
|
|
|
Retained Earnings
|
52,250
|
|
|
|
|
Total Liab & Equity
|
$75,200
|
|
|
|
Additional Information:
a.Everyone who buys H&M's music pays with a credit card. H&M collect 40% in the month of the sale and 60% in the month after the sale.
b.The credit card sales also mean that H&M incur a 1.5% sales fee. The sales fee is due one month after the sale.
c.The cost of sales is 35% of (current month) sales.
d.To make sure they don't run out of music to sell at shows, Hannah & Maggie plan to maintain inventory at the sales requirements for the next two months' budgeted sales.
e.Hannah & Maggie use a credit card for all their purchases; the duo pays off their balance in full the following month.
f.Hannah & Maggie pay their manager 3% of sales each month
g.In addition to the variable management cost, the duo incurs fixed expenses of $5,000 per month, $500 of which is for depreciation of fixed assets.