PROBLEM 9–1 Telnet Corporation is a newly formed computer manufacturer. Telnet plans to begin operations on January 1, Year 2. Selected financial information is available for the preparation of Telnet’s six-month forecasted performance covering the period January 1 to June 30 of Year 2.

Forecasted monthly sales ............................. $250,000 Monthly operating expenses Labor........................................................ 30,500 Rent for factory ........................................ 10,000 Variable overhead .................................... 22,500 Depreciation on equipment ...................... 35,000 Amortization of patents............................ 500 Selling and administrative expenses........ 47,500 Materials.................................................. 125,000 Additional Information:

1. Collection period ................................................................. 45 days 2. Purchase terms................................................................... n/30 3. Ending finished goods inventory ......................................... $100,000 4. Ending raw material inventory............................................ $ 35,000 5. Effective tax rate ................................................................ 50%

6. Beginning cash balance ..................................................... $ 60,000 7. Minimum cash balance required......................................... $ 40,000 8. Prepaid expenses on June 30, Year 2................................... $ 7,000 9. No inventory is in process on June 30, Year 2.

10. Sales are made evenly throughout the period.

11. Expenses are paid in cash (unless otherwise indicated).

12. Telnet Corporation’s balance sheet data on January 1, Year 2, appears as:

Cash................. $ 60,000 Patents............................ $ 40,000 Equipment........ 1,200,000 Shareholders’ equity ........ 1,300,000 Required:

a. Prepare a pro forma income statement to portray the forecasted financial position of Telnet Corporation for the six-month period ended June 30, Year 2.

b. Prepare a pro forma balance sheet as of June 30, Year 2.

c. Prepare a cash forecast analysis as in Exhibit 9A.4 for the six-month period ended June 30, Year 2.