Cash Budget, Pro Forma Balance Sheet Bernard Creighton is the controller for Cre
ID: 342082 • Letter: C
Question
Cash Budget, Pro Forma Balance Sheet
Bernard Creighton is the controller for Creighton Hardware Store. In putting together the cash budget for the fourth quarter of the year, he has assembled the following data.
Sales
Each month, 20 percent of sales are for cash, and 80 percent are on credit. The collection pattern for credit sales is 20 percent in the month of sale, 50 percent in the following month, and 30 percent in the second month following the sale.
Each month, the ending inventory exactly equals 40 percent of the cost of next month's sales. The markup on goods is 33.33 percent of cost.
Inventory purchases are paid for in the month following purchase.
Recurring monthly expenses are as follows:
Property taxes of $15,000 are due and payable on September 15.
Advertising fees of $6,000 must be paid on October 20.
A lease on a new storage facility is scheduled to begin on November 2. Monthly payments are $5,000.
The company has a policy to maintain a minimum cash balance of $10,000. If necessary, it will borrow to meet its short-term needs. All borrowing is done at the beginning of the month. All payments on principal and interest are made at the end of the month. The annual interest rate is 9 percent. The company must borrow in multiples of $1,000.
A partially completed balance sheet as of August 31 is given below. (Accounts payable is for inventory purchases only.)
Required:
1. Complete the balance sheet given in part (j).
Feedback
Remember A = L + OE
2. Bernard wants to see how the company is doing prior to starting the month of December. Prepare a cash budget for the months of September, October, and November and for the three-month period in total (the period begins on September 1). Enter repayments, interest, cash deficiencies and negative total financing as negative amounts. If amount is zero, enter "0".
Feedback
The Schedule of Cash collections will include Cash sales, Credit sales and Total collections.
Complete a supporting schedule of cash collections.
Feedback
The Schedule of Cash collections will include Cash sales, Credit sales and Total collections.
3. Prepare a pro forma balance sheet as of November 30.
July (actual) $100,000 August (actual) 120,000 September (estimated) 90,000 October (estimated) 100,000 November (estimated) 135,000 December (estimated) 150,000Explanation / Answer
Completion of Balance sheet as of August 31, Cash 10200 Accounts Receivable 100800 Inventory 27000 Plant & Equipment 431750 Total asset 569750 Accounts Payable 81000 Common stock 220000 Retained earnings 268750 Total Liabilities & OE 569750 Creighton Hardware Store Cash Budget For the Period Ending November 30 September October November Total Beginning cash balance 10200 10862.5 17425 10200 Cash collections 104400 100800 110200 315400 Total cash available 114600 111662.5 127625 325600 Disbursements: Accounts payable 81000 70500 85500 237000 Salaries and wages 10000 10000 10000 30000 Utilities 1000 1000 1000 3000 Other 1700 1700 1700 5100 Property taxes 15000 15000 Advertising fees 6000 6000 Lease 5000 5000 Total disbursements 108700 89200 103200 301100 Minimum cash balance Total cash needs 10000 10000 10000 10000 Excess (deficiency) -4100 12462.5 14425 14500 Financing: Borrowings 5000 0 5000 Repayments 0 -5000 0 -5000 Interest 37.5 37.5 0 75 Total financing 5000 -5000 0 0 Ending cash balance 10862.5 17425 24425 24425 Feedback The Schedule of Cash collections will include Cash sales, Credit sales and Total collections. Complete a supporting schedule of cash collections. Creighton Hardware Store Cash collections For the Period Ending November 30 September October November Total Cash sales 18000 20000 27000 65000 Credit sales: Current month 14400 16000 21600 52000 Prior month 48000 36000 40000 124000 From two months ago 24000 28800 21600 74400 Total collections 104400 100800 110200 315400 Feedback The Schedule of Cash collections will include Cash sales, Credit sales and Total collections. 3. Prepare a pro forma balance sheet as of November 30. Creighton Hardware Store Pro Forma Balance Sheet Nov-30 Assets: Cash 24425 Accounts Receivable 110400 Inventory 45000 Plant & Equipment 419750 Liabilities: Accounts payable 105750 Owners' Equity: Common Stock 220000 Retained earnings 273825 Totals 599575 599575
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