Assignment Objectives:

Generate the following at the end of a three month quarter

• Balance Sheet at the end of month 3
• Income Statement for the three month period
• Statement of Cash Flows for the three month period

Some hints and thoughts its a process

1. Start with Production
2. Work in tandem
   1. Cash Flows youll need to finish this to get an interest expense number if you are borrowing
   2. Income Statement
3. Ending Balance Sheet

Assumptions:

• Three month time horizon
• Two product lines
  • Product A
    • Sales Price = $70 per unit
    • Costs = $50 per unit
    • Half of costs are paid in the current period and half the following month
  • Product B
    • Sales Price = $100 per unit
    • Costs = $70 per unit
    • Half of costs are paid in the current period and half the following month
• Beginning Inventory
  • 5,000 units of product A
  • 5,000 units of product B
  • Cost of sales on LIFO basis (accounting adjustment made at the end of each quarter)
• Sales Schedule
  • Month 1 = 10,000 units of A; 10,000 units of B
  • Month 2 = 15,000 units of A; 20,000 units of B
  • Month 3 = 15,000 units of A; 25,000 units of B
• Other Cash Outflows
  • S,G&A = $150,000 per month
  • Quarter end dividend of $250,000
  • CAPEX expenditure of $200,000 in month 2
• Other Assumptions
  • Sales collected
    • 40% month of sale
    • 30% following month
    • 30% month after that
  • Beginning A/R collected $125k in month 1 and $125k in month 2
  • Opening A/P balance paid in month 1
  • Even production schedule
  • Target ending inventory at end of quarter = 50% of previous months sales
  • Minimum Cash Balance = $100,000
  • Income Tax Rate = 20%
  • Long-term Debt interest = 5.5%
  • Line of Credit interest rate (if you need to borrow) = 30 day LIBOR (0.50%) plus 350 basis points interest paid on previous months ending balance.

Opening Balance Sheet:

Cash 150,000

Accounts Receivable 250,000

Inventory 600,000

Total Current Assets 1,000,000

Fixed Assets 1,750,000

Total Assets 2,750,000

Accounts Payable 150,000

Line of Credit -0-

Total Current Liabilities 150,000

Long-term Debt 600,000

Total Liabilities 750,000

Common Stock 100,000

Retained Earnings 1,900,000

Total Liabilities & Equity 2,750,000