Solomon Company is a retail company that specializes in sellingoutdoor camping equipment. The company is considering opening a newstore on October 1, 2019. The company president formed a planningcommittee to prepare a master budget for the first three months ofoperation. As budget coordinator, you have been assigned thefollowing tasks:
October sales are estimated to be $310,000, of which 45 percentwill be cash and 55 percent will be credit. The company expectssales to increase at the rate of 20 percent per month. Prepare asales budget.
The company expects to collect 100 percent of the accountsreceivable generated by credit sales in the month following thesale. Prepare a schedule of cash receipts.
The cost of goods sold is 70 percent of sales. The companydesires to maintain a minimum ending inventory equal to 20 percentof the next month’s cost of goods sold. However, ending inventoryof December is expected to be $13,300. Assume that all purchasesare made on account. Prepare an inventory purchases budget.
The company pays 80 percent of accounts payable in the month ofpurchase and the remaining 20 percent in the following month.Prepare a cash payments budget for inventory purchases.
Budgeted selling and administrative expenses per monthfollow:
| Salary expense (fixed) | $ | 19,300 | |
| Sales commissions | | 4 | % of Sales |
| Supplies expense | | 2 | % of Sales |
| Utilities (fixed) | $ | 2,700 | |
| Depreciation on store fixtures(fixed)* | $ | 5,300 | |
| Rent (fixed) | $ | 6,100 | |
| Miscellaneous (fixed) | $ | 2,500 | |
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*The capital expenditures budget indicates that Solomon willspend $160,200 on October 1 for store fixtures, which are expectedto have a $33,000 salvage value and a two-year (24-month) usefullife.
Prepare a pro forma balance sheet at the end of the quarter.(Amounts to be deducted should be indicated by a minus sign.)
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| | SOLOMON COMPANY | | Pro Forma Balance Sheet | | December 31, 2019 | | Assets | | | | Cash | | | | Accounts receivable | | | | Inventory | | | | Store fixtures | | | | Less: Accumulated depreciation | | | | Book value of fixtures | | 0 | | Total assets | | $0 | | Liabilities | | | | Accounts payable | | | | Line of credit liability | | | | Utilities payable | | | | Sales commissions payable | | | | | 0 | | Equity | | | | Retained earnings | | | | | 0 | | Total liabilities andequity | | $0 |
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Prepare a pro forma income statement for the quarter.
Prepare a pro forma balance sheet at the end of the quarter.
Prepare a pro forma statement of cash flows for the quarter.
Prepare a pro forma statement of cash flows for the quarter.(Amounts to be deducted should be indicated by a minus sign.)
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| | SOLOMON COMPANY | | Pro Forma Statement of Cash Flows | | For the Quarter Ended December 31, 2019 | | Cash flows from operatingactivities | | | | Cash payments for inventory | | | | Cash payments for selling and administrative expenses | | | | Cash payments for interest expense | | | | Cash receipts from customers | | | | Net cash flows from operatingactivities | | $0 | | Cash flows from investingactivities | | | | Cash payment for store fixtures | | | | Cash flow from financingactivities | | | | Net inflow from line of credit | | | | Net increase in cash | | | | Plus: Beginning cash balance | | | | Ending cash balance | | $0 |
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