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Problem 14-23 Preparing a master budget for retail company with no beginning account balances LO 14-2, 14-3, 14-4, 14-5, 14-6

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Munoz Company is a retail company that specializes in selling outdoor camping equipment. The company is considering opening a new store on October 1, 2019. The company president formed a planning committee to prepare a master budget for the first three months of operation. As budget coordinator, you have been assigned the following tasks:

Problem 14-23 Part 1

Required

A. October sales are estimated to be $400,000, of which 45 percent will be cash and 55 percent will be credit. The company expects sales to increase at the rate of 20 percent per month. Prepare a sales budget.

B. The company expects to collect 100 percent of the accounts receivable generated by credit sales in the month following the sale. Prepare a schedule of cash receipts.

C. The cost of goods sold is 70 percent of sales. The company desires to maintain a minimum ending inventory equal to 20 percent of the next months cost of goods sold. However, ending inventory of December is expected to be $13,900. Assume that all purchases are made on account. Prepare an inventory purchases budget.

D. The company pays 80 percent of accounts payable in the month of purchase and the remaining 20 percent in the following month. Prepare a cash payments budget for inventory purchases.

E. Budgeted selling and administrative expenses per month follow:

Salary expense (fixed)	$	19,900
Sales commissions		4	% of Sales
Supplies expense		2	% of Sales
Utilities (fixed)	$	3,300
Depreciation on store fixtures (fixed)*	$	5,900
Rent (fixed)	$	6,700
Miscellaneous (fixed)	$	3,100

*The capital expenditures budget indicates that Munoz will spend $180,600 on October 1 for store fixtures, which are expected to have a $39,000 salvage value and a two-year (24-month) useful life.

Use this information to prepare a selling and administrative expenses budget.

F. Utilities and sales commissions are paid the month after they are incurred; all other expenses are paid in the month in which they are incurred. Prepare a cash payments budget for selling and administrative expenses.

G. Munoz borrows funds, in increments of $1,000, and repays them on the last day of the month. Repayments may be made in any amount available. The company also pays its vendors on the last day of the month. It pays interest of 2 percent per month in cash on the last day of the month. To be prudent, the company desires to maintain a $31,000 cash cushion. Prepare a cash budget.

Required A

October sales are estimated to be $400,000, of which 45 percent will be cash and 55 percent will be credit. The company expects sales to increase at the rate of 20 percent per month. Prepare a sales budget.

	October	November	December
Sales Budget
Cash sales
Sales on account
Total budgeted sales

Required B

The company expects to collect 100 percent of the accounts receivable generated by credit sales in the month following the sale. Prepare a schedule of cash receipts.

	October	November	December
Schedule of Cash Receipts
Current cash sales
Plus collections from A/R
Total collections

Required C

The cost of goods sold is 70 percent of sales. The company desires to maintain a minimum ending inventory equal to 20 percent of the next months cost of goods sold. However, ending inventory of December is expected to be $13,900. Assume that all purchases are made on account. Prepare an inventory purchases budget.

	October	November	December
Inventory Purchases Budget
Inventory needed
Required purchases (on account)

Required D

The company pays 80 percent of accounts payable in the month of purchase and the remaining 20 percent in the following month. Prepare a cash payments budget for inventory purchases. (Round your final answers to the nearest whole dollar amounts.)

	October	November	December
Schedule of Cash Payments Budget for Inventory Purchases
Payment of current month's accounts payable
Payment for prior month's accounts payable
Total budgeted payments for inventory

Required E

Prepare a selling and administrative expenses budget.

	October	November	December
Selling and Administrative Expense Budget
Salary expense
Sales commissions
Supplies expense
Utilities
Depreciation on store fixtures
Rent
Miscellaneous
Total S&A expenses

Required F

Utilities and sales commissions are paid the month after they are incurred; all other expenses are paid in the month in which they are incurred. Prepare a cash payments budget for selling and administrative expenses.

	October	November	December
Schedule of Cash Payments for S&A Expenses
Salary expense
Sales commissions
Supplies expense
Utilities
Depreciation on store fixtures
Rent
Miscellaneous
Total payments for S&A expenses

Required G

Munoz borrows funds, in increments of $1,000, and repays them on the last day of the month. Repayments may be made in any amount available. The company also pays its vendors on the last day of the month. It pays interest of 2 percent per month in cash on the last day of the month. To be prudent, the company desires to maintain a $31,000 cash cushion. Prepare a cash budget. (Any repayments/shortage which should be indicated with a minus sign.)

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Cash Budget
	October	November	December
Add: Cash receipts or Less: Cash receipts?
Cash available
Less: Payments
Total budgeted payments
Payments minus receipts
Financing activity

Beginning cash balance

Borrowing (repayment)

Ending cash balance

Financing activity

For inventory purchases

For selling and administrative expenses

Interest expense

Purchase of store fixtures

Surplus (shortage)

Add: Cash receipts

Less: Cash receipts

Part 2

Problem 14-23 Part 2

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.

Required H

Required I

Required J

Prepare a pro forma income statement for the quarter.

MUNOZ COMPANY
Pro Forma Income Statement
For the Quarter Ended December 31, 2019
Cost of goods sold Interest expense Rent expense Sales revenue Selling and administrative expenses
Cost of goods sold Interest expense Rent expense Sales revenue Selling and administrative expenses
Gross margin Gross loss	0
Cost of goods sold Interest expense Rent expense Sales revenue Selling and administrative expenses
Operating income Operating loss	0
Cost of goods sold Interest expense Rent expense Sales revenue Selling and administrative expenses
Net income Net loss	$0

Prepare a pro forma balance sheet at the end of the quarter. (Amounts to be deducted should be indicated by a minus sign.)

MUNOZ COMPANY
Pro Forma Balance Sheet
December 31, 2019
Assets	0	0
Accounts payable Accounts receivable Book value of fixtures Cash	0
	0
	0
Add: Accumulated depreciation Less: Accumulated depreciation
Accounts payable Accounts receivable Book value of fixtures Cash Inventory Line of credit liability Retained earnings Sales commissions payable Store fixtures Utilities payable		0
Total assets		$0
Liabilities
Accounts payable Accounts receivable Book value of fixtures Cash Inventory Line of credit liability Retained earnings Sales commissions payable Store fixtures Utilities payable
Equity
Accounts payable Accounts receivable Book value of fixtures Cash Inventory Line of credit liability Retained earnings Sales commissions payable Store fixtures Utilities payable
Total liabilities and equity		$0

Prepare a pro forma statement of cash flows for the quarter. (Amounts to be deducted should be indicated by a minus sign.)

MUNOZ COMPANY
Pro Forma Statement of Cash Flows
For the Quarter Ended December 31, 2019
Cash flows from operating activities
Cash payment for store fixtures Cash payments for selling and administrative expenses Cash payments for interest expense Cash payments for inventory Cash payments for rent Cash receipts from customers Ending cash balance Net inflow from line of credit
Net cash flows from operating activities		$0
Cash flows from investing activities
Cash payment for store fixtures Cash payments for selling and administrative expenses Cash payments for interest expense Cash payments for inventory Cash payments for rent Cash receipts from customers Ending cash balance Net inflow from line of credit
Cash flow from financing activities
Cash payment for store fixtures Cash payments for selling and administrative expenses Cash payments for interest expense Cash payments for inventory Cash payments for rent Cash receipts from customers Ending cash balance Net inflow from line of credit
Net increase in cash Net decrease in cash
Plus: Beginning cash balance Less: Beginning cash balance
Cash payment for store fixtures Cash payments for selling and administrative expenses Cash payments for interest expense Cash payments for inventory Cash payments for rent Cash receipts from customers Ending cash balance Net inflow from line of credit		$0