You have been asked to prepare a full set of pro-forma statements (cash budget, income statement and balance sheet) for the last 6 months of 2013. The following is the information that you need to complete the task.The sales forecast:
Month Sales
May 2013 180,000
June 180,000
July 360,000
August 540,000
September 720,000
October 360,000
November 360,000
December 90,000
January 2014 180,000
Februrary 180,000
Collection estimates are as follows: collections within the month of sale, 10 percent; collections the month following the sale, 75 percent; collections the second month following the sale, 15 percent. Raw Materials are purchased in the amount of 50% of the predicted sales for the month after next plus 20% of next month's predicted sales, plus 5% of this month's sales. Purchases are paid for in the following month, and there are no discounts available. The cost of raw materials averages 70% of sales.
General and administrative salaries will amount to 10% of projected sales each month; utilities, communication and marketing expenses will be $8,000 a month; depreciation charges will be $36,000 a month; miscellaneous expenses will be $2,700 a month; income tax payment of $50,000 will be due in both September and December; the first progress payment of $180,000 on a new design studio must be paid in October. Cash on hand on July 1 will amount to $132,000, and a minimum cash balance of $90,000 will be maintained throughout the cash budget period.
There is an available line of credit. The interest rate on the line of credit is 8%. If surplus cash is available at the end of a month the excess cash will be used to pay down the line of credit. The interest rate on the long-term debt is 5%. Assume that all interest payments are made in cash and are based upon the prior months balance. The firm will pay down long-term debt in September and November. The amount to be paid is $50,000 each month.
The tax rate is 34%. If the firm experiences negative earnings before tax, please record $0 as the income tax. If you overpay your estimated taxes, let the liability account go negative.