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Anderson Sporting Goods Ltd. (ASG L} is forecasting their upcoming year to try and establish whether the credit limit of their operating line is sufficient
Anderson Sporting Goods Ltd. (ASG L} is forecasting their upcoming year to try and establish whether the credit limit of their operating line is sufficient for next year. The operating line of credit limit is $200K and the interest rate charged on the operating line is 9% per annum. ASGL is a merchandiser of sporting goods in southern Ontario and has been privately owned by the same family for 2 generations. The opening balance sheet for ASGL is shown below. Balance Sheet- Dec 31 prior year Cash 0.00 Operating line 125,000.00 Accounts receivable (net) 250,000.00 Accounts payable 250,000.00 Inventory 150,000.00 Ca pital assets [net] 1,250,000. 00 Commo n stock 600,000.00 Retained earnings 675,000.00 1,650,000.00 1,650,000.00 Since the company has been operating for 2 generations, they have significant past data to use to estimate financial information for the upcoming year. The company's year-end is December and the total sales volume forecasted for next year is $7.5 million. Past data has shown the following trends with respect to monthly sales and gross margins. Portion of Annual Sales Gross margin January 5.0% 5% February 6.0% 5% March 7.0% 5% April 8.0% 5% May 11.0% 10% June 13.0% 15% July 13.0% 15% August 11.0% 10% September 8.0% 5% October 7.0% 5% November 6.0% 5% December 5.0% 5% Total 100.0% Selling and administration expenses are made up of salaries, rent, administration and advertising. Salaries are $15K per month, rent is $10K per month and administration expenses are $12K per month. ASG L typically spends on advertising in the first 4 months of the year and the last 4 months of each year. ASG L is forecasting $10k per month in these months. ASG L has an excellent relationship with its suppliers and is able to maintain a very advantageous just-in- time inventory level. The company maintains an inventory level of only $150K throughout the year. ASG L is going to purchase some new shelving (capital assets} on April 15t of the upcoming year for the company's inventory storage which will cost $135K. The company will pay a down payment of $15K on April 1St and will pay the remaining balance to the vendor over the next 4 years in equal monthly principal payments starting on May lst of the upcoming year. Interest on the shelving loan will be 12% per annum and the interest is paid in the month it is expensed. The new shelving will be depreciated on a straight-line basis over 5 years starting in the month it is purchased. The capital assets at the beginning of the year are depreciated at a rate of $7.5K per month. Interest expense on the operating line in any given month is calculated by multiplying the balance of the operating line at the end of the previous month by the appropriate interest rate. The operating line interest paid in each month is the amount that was expensed in that month. All sales are on account with 20% of sales collected in the month of the sale and the remaining 80% of sales collected in the month following the sale. To be conservative, ASGL provides for a bad debt expense of 5% of sales on account. All of the beginning accounts receivable will be collected in January of the upcoming year. Cost of goods sold is paid 20% in the month of the purchase, 60% in the month following the purchase and the remainder in the 2\"d month after the purchase. Advertising and selling and administration expenses are paid in the month the expense is incurred. The beginning accounts payable will be paid 50% in January and 50% in February of the upcoming year. ASG L has a policy of paying dividends each year equal to 20% of the annual net income. The dividends are paid in December of each year. To assist with the cash flow in the difficult winter months, the shareholders are going to make an equity injection of S75K in February of the upcoming year. Requhed 1) Prepare a twelve-month budgeted Income Statement, Cash Flow and Balance Sheet for ASGL for the coming year. Round all figures to the nearest dollar
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