Cece Saw, a carpenter who has saved some money, has decided to build and operate, with his wife, a 10-unit highway budget motel. Cece invests

$50,000 of his own money in the company ($10,000 by way of common stock and $40,000 as a long-term loan). He also obtained a long-term mortgage on the land and building for $240,000 at an 8% interest rate. Interest is estimated to be $1,600 per month for the first few months of the new business, and principal payments are expected to be $1,000 per month.

Land was purchased for $50,000 cash and $200,000 cash was used to construct a building (estimated life of the building is 30 years, no residual value). Furniture and equipment was purchased for $24,000 (estimated life of the furniture and equipment is 10 years, no residual value).

Linen was also purchased with cash for $6,000, and the owner decided to write off the linen (depreciated, no residual value) over a 5-year period before the business opened. Cece’s company also committed advertising costs of $2,400 for brochures and other items; this cost will be expensed during the first year of business. The first year’s insurance premium of

$3,600 was prepaid before the business started.

For the first three months of business, rooms occupancy is forcasted to be 60%, 65%, and 70%, respectively. To increase room sales volume, a low average room rate of $65 is to be offered. When calculating sales revenue, use a 30-day month. All sales revenue will be on a cash basis.

Since the motel is relatively small, Cece and his wife will run it themselves but expect to hire some part-time help at a cash cost of $400 per month. Cece and his wife will each be paid $2,500 a month by the company for their services. However, for each of the first six months, they will each only take $750 cash out of the business for living expenses, until they are sure the company has sufficient cash resources to pay them the balance. Cece hired casual labor for $853 which will not be paid when the job is completed and will pay the landscaper on April 1.

Laundry and supplies are estimated to be 10% of monthly sales revenue.

This will be paid in cash. Utility costs are forecast to be $300,

$325, and $350 for the first three months of operations, respectively;

however, each month utility costs will not be paid until the following month. Office expenses are expected to be $100 per month in cash.

For each of the first three months of the motel’s operation, prepare an income statement and a cash budget. Also, prepare the balance sheet for the end of Month 3.

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