COMFY HOME GOODS STORES

Comfy Home is a retail business selling a broad range of homeware, kitchen, and electrical appliances to consumers and small businesses. In addition to the home and kitchen appliances, Comfy Home makes and sells home decorating items including artisanal candles and holiday arrangements. The company has two stores located in the small city of Warmtown, USA. Its downtown store offers decorating services to the banks and small businesses in the vicinity. Tenisa Singh handles the candle making and decorating side of the business while Randolf Singh manages the stores. The business is wholly owned by Tenisa and Randolf Singh and was started by the couple in 2014. Comfy Home uses US GAAP for accounting purposes.

Use the following information to answer questions 1-14:

It is now January 2018. The year 2017 finished well. The finalized year-end financial statements for 2017 are provided in the excel file associated with this assignment.

Randolf and Tenisa at Comfy Home would like the accountant to prepare pro-forma financial statements for 2018 based on an optimistic sales forecast. Tenisa has won the business of a large corporate client and the couple believe that Comfy Home revenues will increase by 30% in 2018 as compared with the year 2017.

Using the actual financial statements for 2017 (in the excel file with this assignment), please prepare a pro-forma balance sheet and income statement for 2018 using the percent of sales method. For any financial statement line items where no additional information is provided to indicate otherwise, assume the line item changes proportionally to sales. Note: Please use excel formulas for all calculations and do not round any intermediate steps. If you round during intermediate steps, you may get rounding errors resulting in incorrect answers.

Randolf and Tenisa provide the following additional information to the accountant to prepare the pro-forma statements:

• No new investments in furniture and fixtures or buildings and property are expected for 2018.
• Of the $540,000 in building and properties at year-end 2017, $365,000 represents buildings and $175,000 represents property (land). The buildings are being depreciated straight-line over 10 years with no salvage value.
• The furniture and fixtures are being depreciated straight-line over 15 years with no salvage value.
• The $45,000 current portion of the bank loan will be paid on December 31, 2018. Of the $255,000 in long term debt, another $45,000 comes due on December 31, 2019.
• Comfy Home does not plan to obtain any additional loans in 2018.
• The interest rate for Comfy Homes borrowing has declined recently to 6%. It is expected to be the average rate of interest for Comfy Home short and long-term borrowings in 2018. Use total beginning borrowings to estimate the interest expense for 2018.
• Comfy Home's expected tax rate is 25%. Comfy Home has no outstanding deferred tax assets or deferred tax liabilities.
• Comfy Home is planning a $50,000 cash disbursement to its owners on 12/31/2018. No contributions to owners equity are foreseen.
• Comfy Homes insurance premium covers its buildings and property as well as liability and is not expected to increase in 2018.
• Use Cash as the plug in the pro-forma financial statements.

Question 1

What is the forecasted total revenue on Comfy Homes 2018 pro-forma financial statements?

Question 2

What is the forecasted marketing expenses on Comfy Homes 2018 pro-forma financial statements?

Question 3

What is the forecasted depreciation expense on Comfy Homes 2018 pro-forma financial statements?

Question 4

What is the forecasted interest expense on Comfy Homes 2018 pro-forma financial statements?

Question 5

What is the forecasted cost of goods sold on Comfy Homes 2018 pro-forma financial statements?

Question 6

What is the forecasted insurance expense on Comfy Homes 2018 pro-forma financial statements?

Question 7

What is the forecasted furniture and fixtures on Comfy Homes 2018 pro-forma financial statements?

Question 8

What is the forecasted inventories on Comfy Homes 2018 pro-forma financial statements?

Question 9

What is the forecasted current portion of bank loan on Comfy Homes 2018 pro-forma financial statements?

Question 10

What is the forecasted bank loan (long term portion only) on Comfy Homes 2018 pro-forma financial statements?

Question 11

What is the forecasted contributed capital on Comfy Homes 2018 pro-forma financial statements?

Question 12

What is the forecasted accounts receivable on Comfy Homes 2018 pro-forma financial statements?

Question 13

What is the forecasted deferred revenue on Comfy Homes 2018 pro-forma financial statements?

Question 14

What is the forecasted cash on Comfy Homes 2018 pro-forma financial statements?

COMFY HOME COMPANY Balance Sheet As of December 31, 2016 $ $ Current Assets: Cash Accounts receivable Inventories Prepaid expenses Total Current Assets Current Liabilities: Accounts Payable Salaries and wages payable Current portion of bank loan Deferred revenue Total Current Liabilities 110,000 140,000 310,000 25,000 585,000 $ $ $ $ $ $ $ $ 90,000 20,000 45,000 15,000 170,000 $ Non-Current Assets: Furniture and fixtures Buildings and property (Accumulated Depreciation) Total Non-Current Assets Non-Current Liabilities: Bank Loan Total Non-Current Liabilities $ 300,000 300,000 $ $ 120,000 450,000 (154,000) 416,000 $ $ Owners' Equity: Contributed Capital Retained earnings Total Equity $ $ 250,000 281,000 531,000 $ Total Assets $ 1,001,000 Total Liabilities and Owners' Equity $ 1,001,000 - COMFY HOME COMPANY Balance Sheet As of December 31, 2017 COMFY HOME COMPANY Income Statement For the year ending December 31, 2017 $ $ $ $ 143,000 178,000 358,000 33,000 712,000 Current Liabilities: Accounts Payable Salaries and wages payable Current portion of bank loan Deferred revenue Total Current Liabilities A A A A $ $ $ $ 196,000 30,000 45,000 18,000 289,000 $ $ $ $ $ $ $ - Current Assets: Cash Accounts receivable Inventories Prepaid expenses Total Current Assets 3 Non-Current Assets: Furniture and fixtures Buildings and property - (Accumulated Depreciation) Total Non-Current Assets Total Revenue Cost of Goods Sold Gross Profit Salaries and wages Marketing expenses Selling, General, and Administrative Insurance expense Depreciation expense Operating Profit Interest expense Taxes Net Income $ $ $ 1,602,000 985,000 617,000 199,000 46,000 98,000 48,000 44,000 182,000 30,000 33,000 119,000 Non-Current Liabilities: Bank Loan Total Non-Current Liabilities $ $ $ $ $ 255,000 255,000 $ 150,000 540,000 (198,000) 492,000 $ $ $ $ $ Owners' Equity: Contributed Capital Retained earnings Total Equity $ 260,000 400,000 660,000 $ - Total Assets $ 1,204,000 Total Liabilities and Owners' Equity $ 1,204,000 0 COMFY HOME COMPANY Balance Sheet As of December 31, 2016 $ $ Current Assets: Cash Accounts receivable Inventories Prepaid expenses Total Current Assets Current Liabilities: Accounts Payable Salaries and wages payable Current portion of bank loan Deferred revenue Total Current Liabilities 110,000 140,000 310,000 25,000 585,000 $ $ $ $ $ $ $ $ 90,000 20,000 45,000 15,000 170,000 $ Non-Current Assets: Furniture and fixtures Buildings and property (Accumulated Depreciation) Total Non-Current Assets Non-Current Liabilities: Bank Loan Total Non-Current Liabilities $ 300,000 300,000 $ $ 120,000 450,000 (154,000) 416,000 $ $ Owners' Equity: Contributed Capital Retained earnings Total Equity $ $ 250,000 281,000 531,000 $ Total Assets $ 1,001,000 Total Liabilities and Owners' Equity $ 1,001,000 - COMFY HOME COMPANY Balance Sheet As of December 31, 2017 COMFY HOME COMPANY Income Statement For the year ending December 31, 2017 $ $ $ $ 143,000 178,000 358,000 33,000 712,000 Current Liabilities: Accounts Payable Salaries and wages payable Current portion of bank loan Deferred revenue Total Current Liabilities A A A A $ $ $ $ 196,000 30,000 45,000 18,000 289,000 $ $ $ $ $ $ $ - Current Assets: Cash Accounts receivable Inventories Prepaid expenses Total Current Assets 3 Non-Current Assets: Furniture and fixtures Buildings and property - (Accumulated Depreciation) Total Non-Current Assets Total Revenue Cost of Goods Sold Gross Profit Salaries and wages Marketing expenses Selling, General, and Administrative Insurance expense Depreciation expense Operating Profit Interest expense Taxes Net Income $ $ $ 1,602,000 985,000 617,000 199,000 46,000 98,000 48,000 44,000 182,000 30,000 33,000 119,000 Non-Current Liabilities: Bank Loan Total Non-Current Liabilities $ $ $ $ $ 255,000 255,000 $ 150,000 540,000 (198,000) 492,000 $ $ $ $ $ Owners' Equity: Contributed Capital Retained earnings Total Equity $ 260,000 400,000 660,000 $ - Total Assets $ 1,204,000 Total Liabilities and Owners' Equity $ 1,204,000 0