ACCT 605 - Individual Case Project You're the owner of a local gas station. To help plan for the upcoming year, you are preparing budgets. REQUIRED: a) Using the historical financial statements and assumptions in Appendix A, prepare projected financial statements (aka proforma statements) for the next fiscal year. APPENDIX A Assumptions (Income Statement): #1) With additional advertising, you believe you can increase awareness of your store resulting in higher sales. You estimate the following: Increase Advertising by: $3,000 Results in a 3.00% increase in Sales Year over Year #2) You are considering sourcing your inventory from another supplier. Your Gross Margin Percentage is expected to change to: 54%6 #3) You plan on performing more of the work at the store yourself and can therefore cut down on your salaries expense. This will result in the following: $10,000 in annual savings #5) You purchased new equipment in the year. Dep Exp - Equipment will go up by: #6) All other operating expenses are expected to remain the same total dollar amount year over year. #7) Income Tax Expense will remain at 20% of Profit Before Taxes. Statement of Income - APPENDIX A Revenue Cost of sales Gross profit Expenses Salaries Insurance Actual (Most Recent Year) Projection $400,000 180,000 $220,000 $100,000 3,500 Utilities 2,700 Property Taxes 4,000 Advertising 5,000 Depreciation - Equipment 2,000 Depreciation - Building 3,000 Miscellaneous Expenses 10,000 130,200 Profit before taxes $89,800 Income tax expense (20%) 17,960 Profit for the year $71,840 $1,500 APPENDIX A Assumptions (Statement of Changes in Equity): #1) To meet your personal cash flow needs, you plan on taking a dividend from the corporation. Dividend Declared and Paid in Q1 (Jan-Mar) Dividend Declared and Paid in Q2 (Apr-Jun) $5,000 25,000 Dividend Declared and Paid in Q3 (Jul-Sep) Dividend Declared and Paid in Q4 (Oct-Dec) Total Dividends for Year 35,000 10,000 $75,000 #2) No additional shares will be issued or retired in the Projection Year. Statement of Changes in Equity - APPENDIX A - Projection Balance at Beginning of Year Net Profit (Loss) Dividends to Shareholders Shares Issued (Retired) Balance End of Year Share Capital $50,000 Retained Earnings $222,000 Total $272,000 APPENDIX A Assumptions (Statement of Financial Position): #1) The ending Cash Balance should match and cross reference to the Cash Flow Statement (Appendix A). #2) To reduce the risk of stock-outs (no inventory available for sale), you'll keep more inventory. Increase Inventory by: 5.00% Year over Year #3) To better manage your cash flow, you won't prepay as many expenses. Decrease Prepaid Expenses by: $1,500 #4) New Equipment was purchased in the year for: $15,000 There were no other equipment, building, or land additions or dispositions in the year. #4) Wages Payable will drop to NIL. #5) Accounts Payable will increase by: 40.00% Year over Year Statement of Financial Position - APPENDIX A Assets Current Assets Cash Inventories Prepaid Expenses Total Current Assets Actual (Most Recent Year) Projection $20,000 10,000 3,000 $33,000 Non-Current Assets Equipment $90,000 Accumulated Depreciation - Equipment -25,000 $65,000 Building $200,000 Accumulated Depreciation - Building -120,000 80,000 Land Total Non-Current Assets Total Assets Liabilities 100,000 $245,000 $278,000 Current Liabilities Accounts Payable Wages Payable $5,000 1,000 $6,000 Total Current Liabilities Non-Current Liabilities None Total Non-Current Liabilities Total Liabilities $6,000 Shareholders' Equity Share Capital $50,000 Retained Earnings 222,000 Total Shareholders' Equity $272,000 Total Liabilities and Shareholders' Equity $278,000 Statement of Cash Flows - APPENDIX A Operating Activities: Net Profit (Loss) in Year Depreciation Expense Changes to Non-Cash Working Capital: Inventories Prepaid Expenses Accounts Payable Wages Payable Total Inflow (Outflow) from Operating Investing Activities: Sale (Purchase) of Equipment Total Inflow (Outflow) from Investing Financing Activities: Dividends Paid to Shareholders Total Inflow (Outflow) from Financing Net Inflow (Outflow) of Cash Beginning Cash Balance Ending Cash Balance Projection