Chang Distributors, a wholesale company, is considering whether to open a new distribution center. The center would open January 1, 2016. To make the decision, the planning committee requires a master budget for the center’s first quarter of operation (January, February, and March of 2016).

Required:

You are to construct the first quarter master budget based on the following expectations:

January sales are estimated to be $400,000 of which $100,000 will be cash and $300,000 will be credit. The company expects sales to grow 10% per month. Prepare a sales budget.

The company expects to collect 100% of accounts receivable in the month following the sale. Prepare a schedule of expected cash receipts.

Use the information developed in requirements a and b to determine the amount of accounts receivable on the March 31 pro form balance sheet and the amount of sales on the first quarter pro forma income statement.

Cost of goods sold will be 60% of sales. Company policy is to budget an ending inventory balance equal to 25% of the next month’s projected cost of goods sold. Assume Chang expects April cost of goods sold to be $314,000. Prepare an inventory purchases budget.

All inventory purchases are on account. The company pays 70% of accounts payable in the month of purchase. It pays the remaining 30% in the following month. Prepare a schedule of expected cash payments for inventory purchases.

Use the information developed in requirements d and e to determine the amount of cost of goods sold on the first quarter pro forma income statement and the amounts of ending inventory and accounts payable on the March 31 pro forma balance sheet.

Budgeted monthly selling and administrative expenses are:

Salary Expense (Fixed)	$24,000
Sales Commissions	5% of Sales
Supplies Expense	2% of Sales
Utilities (Fixed)	$ 1,400
Depreciation on Center Equipment (Fixed)*	$ 750
Rent (Fixed)	$ 3,600
Miscellaneous (Fixed)	$ 900

The capital expenditures budget shows that Chang must purchase $100,000 of equipment on January 1 to establish the new center. The equipment supplier allows a thirty-day trial period. Chang will pay for the equipment on January 31.The equipment is expected to have a 10-year useful life and a $10,000 salvage value. Prepare a selling and administrative expense budget.

Sales commissions and utilities are paid in the month after the month in which they are incurred. All other expenses are paid in the month in which they are incurred. Prepare a schedule of cash payments for selling and administrative expenses.

Use the information developed in requirements g and h to determine the amount of sales commissions payable, utilities payable, and accumulated depreciation on the March 31 pro forma balance sheet and the amount of selling and administrative expense on the first quarter pro forma income statement.

Using a line of credit, Chang borrows and repays principal in increments of $1,000 on the last day of the month as needed. It pays interest of 1 percent per month in cash on the last day of the month. Company policy is to maintain an ending cash balance of at least $12,000. Use this information and the schedules prepared in requirements b, e, and h to prepare a cash budget.

Use the information developed in requirement j to determine the cash flows from operating, investing, and financing activities on the first quarter pro forma statement of cash flows, the interest expense on the first quarter pro forma income statement and the amount of the ending cash balance and the line of credit liability on the March 31 pro forma balance sheet.

Complete the first quarter pro forma income statement.

Complete the March 31 pro forma balance sheet.

Complete the first quarter pro forma statement of cash flows.