You are a loan officer for Pacific Bank. The senior loan officer submits to you the following selected financial information as of September 30, Year 6, for Union Corporation, which has filed a loan application:

Current assets

Cash . . . . . . . . . . . . . . . . . . $ 12,000

Accounts receivable. . . . . . . 10,000

Inventory . . . . . . . . . . . . . . . 63,600

Plant and equipment, net. . . .100,000

Total liabilities . . . . . . . . . . . . . 0

Actual sales

September, Year 6 . . . . . . . . 40,000

Forecasted sales

October, Year 6. . . . . . . . . . . 48,000

November, Year 6 . . . . . . . . . 60,000

December, Year 6 . . . . . . . . . 80,000

January, Year 7. . . . . . . . . . . 36,000

Sales are 75% for cash and 25% on account. Receivables are collected in full in the month following the sale. For example, the accounts receivable balance of $10,000 on September 30, Year 6, equals 25% of the sales from September, of which all $10,000 is paid in October. Gross profit averages 30% of sales before purchase discounts. Therefore, the gross invoice cost of goods sold is 70% of sales. Union Corp. carries $30,000 of inventory plus additional inventory sufficient to provide for the anticipated sales of the following month. Purchase terms are 2/10, n/30. Since purchases are made early in each month and all discounts are taken, payments are consistently made in the month of purchase.

Salaries and wages average 15% of sales, rent averages 5% of sales, and all other expenses (except depreciation) average 4% of sales. These expenses are paid in cash when incurred. Depreciation expense is $750 per month, computed on a straight-line basis. Equipment expenditures are forecasted at $600 in October and $400 in November. Depreciation on these new expenditures is not recorded until Year 7. Union Corp. maintains a minimum cash balance of $8,000. Any borrowings are made at the beginning of the month and any repayments are made at the end of the month, both in multiples of $1,000 (excluding interest). Interest is paid when the principal is repaid, equal to a rate of 6% per year.

Required:

a. The senior loan officer requests you prepare the following schedules for the months of October, November, and December, and for the total three months (quarter) ending in December of Year 6:

(1) Estimated total cash receipts.

(2) Estimated cash disbursements for purchases (purchases are 70% of sales for the following month).

(3) Estimated cash disbursements for operating expenses.

(4) Estimated total cash disbursements.

(5) Estimated net cash receipts and disbursements.

(6) Estimated financing required.

b. For the three months (quarter) ending in December of Year 6, prepare a:

(1) Forecasted income statement (ignore taxes).

(2) Forecasted balance sheet.