Problem: The Garden Hotel is in the process of developing a master budget and pro-forma financial statements. The beginning balance sheet is estimated to be:
Garden Hotel
Estimated Balance Sheet
Cash $20,000 Accounts Payable $20,000
Accounts Receivable $30,000 Notes Payable $500,000
Facilities $3,010,000 Capital Stock $100,000
Accumulated Depreciation ($1,100,000) Retained Earnings $1,340,000
Total Assets $1,960,000 Total Liabilities and Equity $1,960,000
During the year, the hotel expects to rent 30,000 rooms. Rooms rent for an average of $90 per night. The hotel expects to sell 40,000 meals during the year at an average price of $20 per meal. The variable cost per room rented is $30 and the variable cost per meal is $8. The fixed costs not including depreciation is expected to be $2,000,000. Depreciation is expected to be $500,000. The hotel also expects to refurbish the kitchen at a cost of $200,000, which is capitalized (included in the facility account). Interest of the note payable is expected to be $50,000 and $100,000 of the note payable will be retired during the year. The ending accounts receivable amount is expected to be $40,000 and the ending accounts payable amount is expected to be $30,000.
a. Prepare the expected income statement.
b. Prepare (in good form) the expected cash flow statement.
c. Prepare the expected balance sheet.