Complete Question Text: Quantum Graphics makes custom T-shirts and other promoti

Question

Complete Question Text:

Quantum Graphics makes custom T-shirts and other promotional products for student organizations and businesses. It plans to open a new location in Austin, Texas. It has secured a corporate contract with Dell Computer Corporation that will generate $5,500 per month in sales. With the new contract and potential student organizations from colleges in San Marcos to Georgetown, it needs to plan for its first quarter of operations.
Quantum Graphics expects cash sales from student organizations to be $2,750, $2,500, and $1,000 for Month 1, Month 2, and Month 3, respectively. Its corporate sales are always made on account. Based on previous history, Quantum Graphics expects to collect 100% of its corporate sales in the following month of the original sale (e.g. Month 1 account sales are collected in Month 2, Month 2 account sales are collected in Month 3, etc.).
Quantum Graphics’ cost of goods sold is projected to be 40% of all sales. Its selling, general and administrative expenses are 16% of all sales (Donations 10% + Advertising 5% + Miscellaneous 1% = 16%). It does not keep any inventory on hand and pays its accounts payable balances in full in the following month of purchase. Quantum Graphics' owner invested $1,500 in this venture. The $1,500 will be used to prepay the first three months of rent. Quantum Graphics signed a three month lease because it is in negotiations to purchase a rundown building for $3,000 located just south of Austin. It believes it will be able to buy the building at the asking price and will need to make a cash payment in Month 3 for the building.
If Quantum Graphics is short of cash, it has access to a line of credit with an interest rate of 10%. The total line of credit is $5,000. It will borrow the money at the beginning of the month to avoid a cash shortage. Quantum Graphics will only repay the loan when it has enough cash to pay the full balance and maintain an adequate ending cash balance. All loans that are repaid are repaid on the last day of the month. Quantum Graphics must always maintain an ending cash balance of at least $300.
An owner’s draw of $2,000 is made every month. (Note: sole proprietors and partnerships take owner’s draws, stockholders receive dividends).
Based upon the information provided, complete the operations budget and answer the questions in Connect. When making calculations always round up (i.e. 33 × 7% = 2.31, round up to 3.00). You may also assume that there are 30 days in each month of the first quarter.

What is the total projected sales for the first quarter of operations?
$16,500
$17,250
$6,250
$22,750
How much cash does Quantum Graphics expect to collect in the first quarter of operations?
$6,250
$22,750
$11,000
$17,250 What is the projected payments for purchases in the first quarter of operations?
$6,500
$5,800
$2,600
$9,100
What is the total projected Cost of Goods Sold for the first quarter of operations?
$2,600
$3,300
$9,100
$6,500
What is the total projected SG&A expense?
$5,140
$2,820
$2,320
$3,640
What is the total projected cash payments for SG&A expense?
$2,820
$2,320
$5,140
$3,640 What is the projected beginning cash balance for Month 1?
$300
$4,250
$1,500
$2,750
What is the projected ending cash balance for Month 1?
$300
$870
($570)
None of the above. Will Quantum Graphics need to borrow money in Month 1?
Yes
No If you answered "Yes" for Question 14, how much money will Quantum Graphics need to borrow to ensure it does not have a cash shortage?
$570
$300
$870
Quantum Graphics does not need to borrow money in Month 1.
If Quantum Graphics borrowed money in Month 1, what is the projected interest Quantum Graphics will have to pay for borrowing the money?
$15
Quantum Graphics will not have interest because it does not need to borrow money in Month 1.
$570
$7 $870 Quantum Graphics will have a cash surplus in Month 2.
True
False
If Quantum Graphics has a projected cash surplus in Month 2, how much cash will it repay for borrowing on its line of credit?
$870
$570
$885
Quantum Graphics will not have a cash surplus, therefore it will need to borrow more money in Month 2.
$877
Quantum Graphics will need to borrow money in Month 3?
True
False If Quantum Graphics is projected to have a cash shortage in Month 3, how much is the shortage?
Quantum Graphics will not have a projected cash shortage in Month 3.
$1,181
$2,205
$1,905 If Quantum Graphics has a projected cash shortage for Month 3, how much will it need to borrow?
$300
$1,905
$2,205
Quantum Graphics will not have a projected cash shortage in Month 3.
What is the projected gross profit for the first quarter of operations?
$13,650
$22,750
$8,485
$9,100
What is the projected interest expense for the first quarter of operations?
$26
$0
$228
$34
What is the projected net income the first quarter of operations?
$8,476
$8,485
$13,650
$22,750
What is the projected beginning capital investment for the first quarter of operations?
Cannot be determined
$1,500
$3,985
$0
What is the projected total owner's equity for the first quarter of operations?
$1,500
$8,476
$3,976
$6,000
What is the projected ending cash balance for the first quarter of operations?
$0
$2,197
$300
$1,897
What is the projected accounts receivables balance for the first quarter of operations?
$16,500
$6,250
$5,500
$22,750
What is the projected accounts payable for the first quarter of operations?
$9,100
$3,200
$2,600
$5,165
What is the projected interest payable for the first quarter of operations?
$7
$25
$34
$19
What is the projected net cash flow from operating activities for the first quarter of operations?
$17,250
$5,595
$0
$300
What is the projected net cash flow for investing activities for the first quarter of operations?
$3,000
($3,000)
$1,500
$6,000
What is the projected cash flow from financing activities for the first quarter of operations?
$1,500
$2,205
($6,000)
($3,795)
$870
$3,075

Explanation / Answer

The answers are providing in below working tables.

Quantum Graphics

The answers are providing in below working tables.

Quantum Graphics

Profit and Loss Account Month 1 Month 2 Month 3 Quarter Sales - Corporate $5,500 $5,500 $5,500 $16,500 - Cash Sales $2,750 $2,500 $1,000 $6,250 -Total $8,250 $8,000 $6,500 $22,750 Cost of Goods sold @ 40% of sales $3,300 $3,200 $2,600 $9,100 Selling and Administrative expenses @ 16% of sales $1,320 $1,280 $1,040 $3,640 Rent 500 500 500 $1,500 Interest on Line of credit 10 $10 Operating Income $3,130 $3,020 $2,350 $8,500 Drawl by owners 2000 2000 2000 $6,000 Net Income $1,130 $1,020 $350 $2,500 Balance sheet items Projections Month 1 Month 2 Month 3 Quarter Accounts Receivables Opening Balance 0 5500 5500 0 Add Sales - Corporate $5,500 $5,500 $5,500 $16,500 - Cash $2,750 $2,500 $1,000 $6,250 Less Collections - Corporate -$5,500 -$5,500 -$11,000 - Cash -$2,750 -$2,500 -$1,000 -$6,250 Closing Balance 5500 5500 5500 5500 Accounts Payable Opening Balance 0 4620 4480 0 Add Expenses $0 - Cost of Goods sold $3,300 $3,200 $2,600 $9,100 - Selling & Admin Expenses $1,320 $1,280 $1,040 $3,640 Less Payments -$4,620 -$4,480 -$9,100 Closing Balance 4620 4480 3640 3640 Cash Balance Opening Balance 0 1750 2630 0 Add: Collections from receivables $2,750 $8,000 $6,500 $17,250 Capital infusion 1500 $1,500 Utilisation of Line of credit 1150 $1,150 $0 Less Payables Payments 0 -4620 -4480 -$9,100 Rent -500 -500 -500 -$1,500 Building -3000 -$3,000 Drawls by owners -2000 -2000 -2000 -$6,000 $0 Closing Balance 1750 2630 300 300 Capital (Liability ) Op Balance 2630 3650 0 Add Equity Infusion 1500 1500 Less Drawls 0 Add Profit for the month $1,130 $1,020 $350 2500 Cl Balance 2630 3650 4000 4000 Building 3000 3000 Line of credit Op Balance 1150 Add Interest accrued 10 Closing balance 1160 Balance Sheet as on month ends Month 1 Month 2 Month 3 Liabilities Capital 2630 3650 4000 Line of credit 0 0 1160 Accounts Payable 4620 4480 3640 Total 7250 8130 8800 Assets Buiding 0 0 3000 Accounts Receivables 5500 5500 5500 Cash 1750 2630 300 Total 7250 8130 8800

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