Budget Project

Assignment:

How much will be owed to the bank on June 30, 2016?

Prepare a monthly income statement and monthly balance sheet for the company FINA 470 for the first six month of 2016.

Also reconcile between monthly earnings and the amount of cash available to reduce the bank note.

Neat Presentation is important. (page breaks and formatting will be evaluated.)

Information obtained during interview:

Sales in November and December 2015 were $100,000 and 110,000, respectively.

Gross profit averages 46%

General and administrative expense approximate 31% of sales.

Sales in 2016 are expected to increase 5% a month.

Inventory at month end is targeted to equal the following two months anticipated sales

Cash at December 31, 2015 was $25,000 and is expected (budgeted) to increase by $1,200 per month.

Other assets at 2015 year end was $16,000 and expected to remain at the same level.

Common stock is valued at $50,000 and no additional sales expected.

Accounts payable at each month end equals 75% of month end inventory.

Accounts receivable turn over approximately 12 times.

Bank Note was $120,000 at December 31, 2015.

For this exercise you can assume no income tax expense and no interest expense.

All extra cash not needed to maintain the budgeted cash balance is used to reduce the bank note.

Hints:

Before preparing January Balance sheet, you will need to prepared a balance sheet as of December 31, 2015.

You have all the information needed to prepare the Dec. balance sheet, except for retained earnings.

Based on the rest of the balance sheet numbers for December, you should be able to determine what is retained earnings.

When preparing the balance sheet for January, remember that the ending retained earnings for Janaury will equal the beginning retained earnings,

(same as December's ending) plus the earnings for January.

You will need to prepare the income statement for each month to determine the amount of earnings to be added to the retained earnings at the

beginning of each month to determine the ending retained earns for each month.

The amount of earnings from the income statement is not the amount of the reduction in the bank note. (Other balance sheet items either

utilize or provide cash.)

You can either determine what is the amount of the bank note, by "backing into" what the balance must be based on all the other items, or

by determine how much of the cash from income is available after considering the change in the other balance sheet accounts.

Reminder, you will need to prepare the reconciliation between cash generated from earnings and cash available to reduce notel.

Many student get stumbed when trying to determine the amount of accounts receivable. Use some commons sense.

If accounts receivable turns 12 time how many months of sales would be in ending receivables?

In computing inventory, since it equals the next two months of sales, then you may need to compute sales for more than just the

first six months.

Below is a suggested format for the balance sheet.

Cash and cash equivalents

Receivables

Inventories

Total current assets

Other non-current assets

Total assets

Accounts payable

Bank note

Total liabilities

Common stock

Retained earnings

Total equity

FINA 470
Budget Forecast
December	January	February	March	April	May	June
Income Statements:
Sales
Cost of goods sold
Gross profit
General & adm. expenses
Net Income
Balance sheets:
Assets:
Cash and cash equivalents
Receivables
Inventories
Total current assets
Other non-current assets
Total assets
Liabilities:
Accounts payable
Bank note
Total liabilities
Equity:
Common stock
Retained earnings
Total equity
Total liabilities and equity
Reconciliation between Net income and cash reduction in Notes payable:
Source of funds:
Net Income
Increase in accounts payable
Use of funds
Cash
Accounts receivables
Inventory
Cash available to pay bank note
Prior month bank note balance
Expected bank note balance
Ending bank note balance

Total liabilities and equity

Fina 470
Budget Forecast
December	January	February	March	April	May	June
Income Statements:
Sales	110,000
Cost of goods sold		62,370
Gross profit	55,787
General & adm. expenses				39,475
Net Income					20,056
Balance sheets:
Assets:
Cash and cash equivalents	25,000
Receivables	115,500
Inventories			261,044
Total current assets	430,035
Other non-current assets					16,000
Total assets						489,583
Liabilities:
Accounts payable	186,460
Bank note			104,226
Total liabilities				301,225
Equity:
Common stock	50,000
Retained earnings						135,925
Total equity							208,037
Total liabilities and equity	387,775
Reconciliation between Net income and cash reduction in Notes payable:
Source of funds:
Net Income	17,325
Increase in accounts payable		9,323
		28,890
Use of funds
Cash	1,200
Accounts receivables	6,685
Inventory						15,110
Cash available to pay bank note	8,109
Prior month bank note balance	120,000
Expected bank note balance			95,652
Ending bank note balance				86,589