Assume ABC Company has asked you to not only prepare their 2017 year-end Balance Sheet but to also provide pro-forma financial statements for 2018. In addition, they have asked you to evaluate their company based on the pro-forma statements with regard to ratios. They also want you to evaluate 3 projects they are considering. Their information is as follows:

End of the year information:

Account	12/31/17 Ending Balance
Cash	50,000
Accounts Receivable	175,000
Inventory	126,000
Equipment	480,000
Accumulated Depreciation	90,000
Accounts Payable	156,000
Short-term Notes Payable	12,000
Long-term Notes Payable	200,000
Common Stock	235,000
Retained Earnings	solve

Additional Information:

• Sales for December total 10,000 units. Each months sales are expected to exceed the prior months results by 5%. The products selling price is $25 per unit.
• Company policy calls for a given months ending inventory to equal 80% of the next months expected unit sales. The December 31 2017 inventory is 8,400 units, which complies with the policy. The purchase price is $15 per unit.
• Sales representatives commissions are 12.5% of sales and are paid in the month of the sales. The sales managers monthly salary will be $3,500 in January and $4,000 per month thereafter.
• Monthly general and administrative expenses include $8,000 administrative salaries, $5,000 depreciation, and 0.9% monthly interest on the long-term note payable.
• The company expects 30% of sales to be for cash and the remaining 70% on credit. Receivables are collected in full in the month following the sale (none is collected in the month of sale).
• All merchandise purchases are on credit, and no payables arise from any other transactions. One months purchases are fully paid in the next month.
• The minimum ending cash balance for all months is $50,000. If necessary, the company borrows enough cash using a short-term note to reach the minimum. Short-term notes require an interest payment of 1% at each month-end (before any repayment). If the ending cash balance exceeds the minimum, the excess will be applied to repaying the short-term notes payable balance.
• Dividends of $100,000 are to be declared and paid in February.
• No cash payments for income taxes are to be made during the first calendar quarter. Income taxes will be assessed at 35% in the quarter.
• Equipment purchases of $55,000 are scheduled for March.

Part A:

• Prepare budgets such that the pro-forma financial statements for the first quarter of 2018 may be prepared.
• Expected cash receipts from customers and the expected March 31 balance of accounts receivable.
• Expected cash payments for purchases and the expected March 31 balance of accounts payable.
• Cash buget
• Budgeted income statement.
• Budgeted statement of retained earnings.
• Budgeted balance sheet.

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