Carefully read the financial and operational data of JKL Corporation provided below and use them to prepare the budget for:

Sales receipts for the quarter

Purchases for the quarter

Disbursements on purchases for the quarter

Disbursements of administrative and selling expenses for the quarter

Financial and operational data of JKL Corporation

JKL Corporation is engaged in the trading business and is designing its master budget for the next operating quarter of April to June 20xx. The data collected and necessary to work with such a budget is the following:

A. Certain data from

	Dr.	Cr.
Cash	$20,000
Accounts receivable	$64,000
inventory	$15,400
Building and equipment (net of depreciation)	$225,000
Account payable		$23,400
Long-term debts		$90,000
Common shares-capital		$150,000
Retained earnings		$61,000
Totals	$324,400	$324,400

the Balance Sheet as of March 31, 20xx:

B. The expected (projected) and actual sales for several months of 20xx are:

March (real)	$80,000
April	$77,500
May	$72,100
June	$81,300
July	$53,100

C. Other important information:

1- Monthly sales are 20% in cash and 80% on credit. Credit sales from the previous month are collected in full in the following month (so what is in accounts receivable at the end of March is 80% of March sales).

2- The gross profit margin that the corporation generates on its sales is 42%.

3- Each month's ending inventory is equal to 25% of the next month's budgeted cost of sales.

4- 40% of monthly merchandise purchases are paid in the month of purchase and the remainder in the month following the purchase.

5- The expected monthly expenses are: salaries, $11,900; advertising, $6,800 per month and remaining expenses (except depreciation) represent 9% of sales. Assume that these expenses are paid every month (nothing is owed at the end of the month).

6- The depreciation expense is $10,000 for the quarter and includes the portion that corresponds to the assets acquired during the period.

7- Equipment was acquired in cash: $23,500 in April and $18,000 in May 20xx.

8- Management wishes to maintain a minimum cash balance at the end of each month of $8,000.

9- When the company needs money, it can borrow from a local bank in increments of $1,000 at the beginning of each month up to a loan limit of $20,000. The interest rate that the bank charges on these loans is 1% per month and the interest is paid the next month (we assume that it is not compound interest and that each loan is made at the end of the month). The company paid dividends of $7,200 in June.

D.Prepare the cash budget for the quarter ending in June. Use the following table as a model:

	april	may	june	total
Beginning cash balance
Cash collections
Available cash
Less disbursements:
Shopping
Administrative and sales
Purchase of equipment
Dividends
Total disbursements
Excess (deficiency) of cash
Financing;
loan
Loan payments
Interest
Financing
Effective final balance

**carefully review illustrative exercise bellow

1. Prepare the Proforma Balance Sheet for June 30, 2013

Current assets:

Cash (see req. #5) ........................................... ............................................ $8,400

Accounts receivable (80% $90,000*)............................................... ................... 72,000

Inventory (see req. #2) ........................................... ....................................... 9,000

Total current assets................................................... ................................... 89,400

Equipment, net

($214,100 + $14,500** - $6,000^).............................................. ....................... 222,600

Total assets................................................ .................................................. .... $312,000

Debt and shareholders' equity

Current debts:

Accounts payable (50% $46,800^^)............................... $23,400

Shareholders' capital:

Common stock capital ........................................... $190,000

Retained earnings#............................................... ......... 98,600 288,600

Total debts and capital ................................................ .............. $312,000

# Beginning balance, retained earnings ......................... $75,400

Net income##.............................................. ................. 26,700

Total ................................................. ........................... 102,100

Dividends (given).................................................. ........... (3,500)

Final balance, retained earnings................................ $98,600

*80% of the month's sales are not collected until the next month.

**Equipment purchases during the month.

^ Depreciation of the month

^^50% of the month's purchases are paid for next month.

#Data from illustrative exercise #1 of module 6.

##See Pro Forma Statement of Income and Expenses below.

As you can see, you need the final balance sheets and other data from the

master budget to build the Proforma Balance Sheet.

Certain balance sheets are figures that reflect a change during the

quarter, so I show you how we obtained them (team,

retained earnings).

2- Prepare the Proforma Statement of Income and Expenses for the quarter ended 30 June 2013.

JKL Corporation

Proforma Income and Expense Statement

for the quarter ended June 30, 2013

Sales................................................. ................................ $245,000

Cost of goods sold:

Initial inventory ................................................ ..........$12,600

Purchases (see req. #2) .......................................... ....143,400

Available for sale................................................. .... 156,000

Final inventory (see req. #2)..........................................9,000 147,000 &

Gross margin................................................ .................... 98,000

Administrative and sales expenses (see requirement #4):

Wages................................................. ....................... 22,500

Distribution................................................. ................. 14,700

Advertising................................................. .................. 18,000

Depreciation................................................. .............. . 6,000

Other expenses................................................ ..............9,800 71,000

Net operating income ................................................ .. 27,000

Interest expense................................................. ................ . 300

Net income................................................ .................... $26,700

Another way to obtain the cost of goods sold (CBV) is:

Remember that, if the margin or gross profit is 40% of sales, then;

$245,000 X 60% = $147,000

On the other hand, note that the Proforma Statement of Income and Expenses reflects the changes that occurred in different games during the year. The expenses, on the other hand, are found under the required 4 from Illustration #1 of module 6.

1. Prepare the Proforma Cash Flow Statement for the quarter ended 30 June 2013.

If you compare the opening balances of the accounts in the Balance Sheet as of March 31,

2013 (according to Illustration # 1 of module 6) with the Proforma Balance Sheet as of June 30

2013 in required #1 of this exercise, you will notice that the figures changed during the

quarter. If you add the changes in the Proforma Income and Expense Statement of the required#2 of this problem, you will be offering an explanation of the changes in the inputs and outputs of money. Furthermore, you can examine the Cash Flow Budget and you will see the different receipts and disbursements of money, as well as their sources, for the period of analysis.

For example, if accounts receivable on March 31 were $48,000 and on June 30, $72,000,wants

say that there was an increase of $24,000 in accounts receivable in the period. That implies that

more sales were on credit (not collected). Furthermore, you must presume that the $48,000 was the first accounts collected during the quarter under analysis. So how much was charged?

$245,000 (sales for the quarter) + $48,000 (what was collected) - $72,000 (what was not collected) = $221,000 (You will notice that this is precisely the amount of charges reflected in the budget of cash).

Below, I present the Proforma Cash Flow Statement under both methods.

Direct method:

Examine the Cash Budget in Illustration #1 of Module 6 and you will see how the

figures come from there. Review the three types of activities that are disclosed: operational,

investment and financing. In the case of this method, what we do is convert each

line or item of the Statement of Income and Expenses from the accumulation base (base in the

which are established) to the basis of collections and disbursements. Read the example again

I posted above how we convert sales into collections from clients.

JKL Corporation

Proforma Cash Flow Statement

for the quarter ended June 30, 2013

Collections from clients............................................... ............... $221,000

Disbursements:

Shopping ................................................. .................... $138,300

Wages................................................. ....................... 22,500

Distribution................................................. ................. 14,700

Advertising................................................. .................... 18,000

Other expenses..................................... 9,800

Interest................................................. ............................ 300

Total disbursements (203,600)

Cash provided by operations 17,400

Cash provided by activities

investment................................................. ...........................

Equipment purchases................................................. ........ (14,500)

Cash provided by activities

financing ................................................. ................

Dividends paid................................................ ...... (3,500)

Change in cash balance (600)

Beginning cash balance, 1/4/13................................... 9,000

Ending cash balance, 6/30/13......... $8,400

Indirect method:

In this case, the aim is to reconcile the data from the net income [calculated according to

the accrual basis, in which income is recognized when it is accrued and expenses when incurred] to cash provided by operations. For this we have to take into consideration the income and expenses that have nothing to do with inflows and outflows of money and add or subtract them from the net income, as applicable.

Additionally, we have to take into consideration changes in assets and debts

currents during the period due to their relationship with the conversion to cash in the

operations. The relationship between current assets and cash is inverse, so

We will add the decreases in current assets and subtract the increases. The relationship

between debts and cash is direct, so we add the increases and subtract the

decreases in current debts.

The total cash provided by the operations must be the same under both methods. The

presentation of investment and financing activities does not vary with the use of a

particular method.

JKL Corporation

Proforma Cash Flow Statement

for the quarter ended June 30, 2013

Net income................................................ .................... $26,700

Plus: Depreciation 6,000

Increase in accounts receivable ........................................... (24,000)

Decrease in inventory................................................. 3,600

Increase in accounts payable................................................ 5,100

Cash provided by operations $17,400

Cash provided by activities

investment................................................. ...........................

Equipment purchases................................................. ........ (14,500)

Cash provided by activities

financing ................................................. ................

Dividends paid................................................ ...... (3,500)

Change in cash balance (600)

Beginning cash balance, 1/4/13................................... 9,000

Ending cash balance, 6/30/13......... $8,400

4- Use ratio analysis to evaluate financial information (ratio analysis) and

explain the results.

When we make a comparison based on financial ratios, the comparison should be made in terms of trends or changes in those ratios financial over time and for the same company. Furthermore, they must be compared with the industry trends or best practices. Only then will we have a complete picture of how the company's performance has been.

In the next table, you will only examine a comparison of various financial ratios between the

quarters ending March 31 and June 30. March values are given, but We illustrate the computation of the values obtained for June 30 and interpret the results.

Financial ratio (ratio) March 2013 June 2013

1- Current ratio 3.77 3.82

2- Acid ratio 3.11 3.44

3- Accounts receivable turnover 4.55 times. 4.08 times

4- Average collection period 80.2 days 89.5 days

5- Inventory turnover 12.4 times 13.6 times

6- Average sales period 29.4 days 26.8 days

7- Debt/Assets 6.5% 7.5%

8- Debt/Shareholders'Equity 6.9% 8.1%

9- Interest coverage 85 times 90 times

10- Gross margin 40% 40%

11- Net margin 8.9% 10.9%

12- Return on investment 9.5% 8.6%

Reasons related to liquidity

Liquidity is the ability to satisfy short-term debts as they come due. In it

In the case of our problem, the values for June 30of 2013 are the following.

1) Current ratio = Current assets/Current debts

= $89,400/$23,400 = 3.82

2) Acid ratio (quick ratio) = (Current assets - Inventory) / Current debts

= $80,400/$23,400 = 3.44

The company manages its current assets very well and does not take on too much debt, even though Your collections policy needs to improve (see below).

Ratios related to rotation or activity (turnover ratios)

These ratios show how quickly certain items become entries or exits.

of money. The reduction in rotation (turnover) implies that skill is being lost in the

asset or debt management.

1) Accounts Receivable Turnover = Sales/Average Accounts Receivable

= $245,000/ [($48,000 + $72,000)/2] = 4.08 times

2) Average collection period = 365 days/ Accounts receivable turnover

= 365 days/ 4.08 = 89.5 days

3) Inventory Turnover = Cost of Sales/Average Inventory

= $147,000/ [($12,600 + $9,000)/2]

= 13.6 times

4) Average sales period = 365 days/Inventory turnover

= 365 days/ 13.6 = 365/13.6 = 26.8 days

The inventory is sold in its entirety almost 14 times in the period. However, the accounts for

It takes just over 89 days to collect. The credit and collections policy must be improved.

The company seems solid and consistent, but that is because it has not had to go into debt to

fulfill their short-term commitments, as we saw before.

Reasons related to solvency

These financial ratios show the company's ability to meet its objectives.

long-term contractual commitments. As long-term debts increase,

increases the risk of compliance.

1) Debt/Assets = $23,400/ $312,000 = 7.5%

2) Debt/Shareholders' Equity = 8.1%

3) Interest coverage (times interest earned) = Income before taxes and interest (the

effect of taxes was not taken into account in this problem)

= $27,000/$300 = 90 times

The percentage of debts and the need for external financing have been, practically,

non-existent in this company in the past quarters. It is interesting to see that the company generates good cash flow to meet your commitments, even though it takes so long to collect

their credit sales.

Reasons that have to do with generating profits (profitability)

They serve to evaluate the company's ability to generate profits in relation to

certain critical items such as sales, assets and capital, among others.

1) Gross profit margin = (Sales - Cost of sales)/Sales

= $98,000/ $245,000 = 40%

2) Net profit margin = Profits available to common shareholders (or income

net)/Sales

= $26,700/ $245,000 = 10.9%

3) Return on investment = Earnings available to common shareholders (or income

net)/Total assets

= $26,700/ $312,000 = 8.6%

The company skillfully manages its assets to generate and capitalize profits. Nevertheless,

It seems that your return on investment is beginning to reduce.

E.Develop the following projected financial statements:

1- Pro forma balance sheet as of June 30, 20xx.

2- Proforma income and expense statement for the quarter ended June 30, 20xx.

3- Proforma cash flow statement for the quarter ended June 30, 20xx.

Then, complete the following financial analysis rate table. Shows the calculation to obtain each rate.

Financial rates (ratios)	June 20xx	calculations
Current rario
Acid-test ratio
accounts receivable turn-over
average collection period
inventory turn-over
average sales period
Debt/Assets
debt-equity ratio
timesinterest earned ratio
gross margin percentage
Net Margin
ROI: return on investment