1.Caribbean Health Foods had sales of $40,000 in March and $30,000 in April. Forecast sales for May, June, and July are $40,000, $50,000, and $55,000, respectively. The firm has a cash balance of $5,000 on May 1 and wishes to maintain a minimum cash balance of $5,000.

(1)The firm makes 60% of sales for cash, 40% are collected in the next month.

(2)The firm's actual or expected purchases, 50% made for cash, 30% paid in the next month and 20% paid in the second month after the purchase, are $50,000, $70,000, and $80,000 for the months of May through July, respectively.

(3)Rent is $10,000 per month.

(4)Wages and salaries are 25% of the previous month's sales.

(5)Cash dividends of $5,000 will be paid in June.

(6)Payment of principal and interest of $4,000 is paid monthly.

(7)A cash purchase of equipment costing $10,000 is scheduled in July.

(8)Taxes of $2,000 are due in June.

Requirement:

Given the above data, prepare and interpret a cash budget for the months of May, June, and July.

2.Keith Corporation wishes to prepare financial plans. Use the financial statements on the next page and the other information provided below to prepare the financial plans.

The following financial data are also available:

(1) The firm has estimated that its sales for 2013 will be $950,000.

(2) The firm expects to pay $30,000 in cash dividends in 2013.

(3) The firm wishes to maintain a minimum cash balance of $25,000.

(4) Accounts receivable represent approximately 20% of annual sales.

(5) The firm's ending inventory will change directly with changes in sales in 2013.

(6) A new machine costing $45,000 will be purchased in 2013. Total depreciation

for 2013 will be $10,000.

(7) Accounts payable will change directly in response to changes in sales in 2013.

(8) Accruals would be one fourth of Cost of Goods Sold estimated for 2013.

(9) Notes Payable would decrease by $500.

(10) Marketable securities, other current liabilities, long-term debt, and common stock will remain unchanged.

Requirement:

a. Prep a pro forma income statement for the year ended December 31, 2013, using the percent-of-sales method.

b. Prep a pro forma balance sheet dated December 31, 2013, using the judgmental approach.

c. Analyze these statements, and discuss the resulting external financing required.

1.