CNE Inc. sells computer network equipment. The early part of 2018 turned out to be highly profitable for CNE with record-breaking sales of 1,000 units from January through March. Exhibit A on page 3 shows the breakout of the number of units sold to CNE’s primary customers including when each customer purchased product when the order was shipped, the number of units purchased and the price per unit. To help expedite sales CNE offered 2/10, n/30 credit terms to all of its customers. Acore took advantage of these credit terms with Acore paying within 10 days of receiving its product. Xplex paid for its purchase 30 days after receiving its order. While Integrative Designs paid 40% of the order amount at the time it orders product and the remaining 60% of the order 45 days after receipt of its product. Unfortunately, on April 10th Integrative Designs declared bankruptcy and did not pay its remaining accounts receivable balance.

To generate more operating cash flow, the company decided to rely more heavily on accounts payable. In January of 2018 all purchases for raw materials were switched from a cash basis to A/P with 2/15, n/30 terms. Based on early payment discounts from its suppliers CNE adopted a policy of paying within the 15-day window. Exhibit B on page 3 shows the schedule of the company’s raw material purchases by month and when CNE paid for each purchase.

To remain competitive CNE expanded its output by automating its production process. In January CNE spent $1,500,000 for new robotic equipment and spent another $100,000 to have the equipment installed. The robotic equipment has a useful life up to 7 years and it can typically produce 200,000 units before equipment breaks down and needs to be replaced. The salvage value of this equipment is estimated at $300,000. As a result of automating its production process, CNE was able to reduce its direct labor cost down to $75 dollars per unit.

CNE financed this new equipment purchase through a combination of debt and equity. On January 1st, CNE received a $750,000 loan from a commercial bank at 6% interest. Starting on February 1st principal and interest payments of 10,000 are to be paid on a monthly basis over 7 years. Also in January CNE issued $750,000 of common stock. In this offering, 100,000 shares were issued at a par value of $3 per share.

As the first quarter of 2018 came to a close, profits were at a record high. CNE declared a cash and stock dividend in the month of March. The cash dividend was set at $.50 cents per share and the stock dividend was set at 5% of total outstanding stock with a par value of $2 per share. Total outstanding stock at the end of March was 200,000 shares. The dividends were distributed in April. The stock was trading at $8 per share at the time the dividends were declared and distributed.

Your Task: Based on the information provided finish CNE’s financial impact template for the months of February through April (January is given), use the following additional assumptions to guide your analysis.

Additional Assumptions:
1. Purchases for capital equipment and installation were paid for in cash in January. The capital equipment was installed on January 31st. Start depreciating the equipment in February.
2. All units are manufactured in the same month of the raw material purchase.
3. Direct Labor is paid for in cash at the end of each month.
4. For Inventory and Cost of Goods sold calculations use the FIFO method
5. For this exercise ignore calculating and recording the current portion of long term debt.

Template and Transactions provided for January

Exhibit A - Sales Schedule Company Order Date Acore January 1st Integrative Design February 1st Xplex March 1st Shipped Date February 1st March 1st April 1st Units 150 $ 325 $ 350 $ Price Total Purcashed Amount 750 $ 750 $ 750 $ 112,500 243,750 262,500