Comprehensive master budget in a retail setting (LO 3, 4, 5) Joseph A. Knab distributes men's suits in the Southwest. The following information was gathered to prepare the budget for the third quarter of 2011. Suits are budgeted to sell for an average price of $225. Unit sales are expected to be as follows: June 4,000 suits July 4,500 suits August 4,700 suits September 4,600 suits October 4,600 suits Sales are made for cash and on credit. The following collection pattern is used to estimate monthly cash collections: Cash sales 41% Credit salesmonth of sale 35 Credit salesmonth after sale 20 Uncollectible 4 Total 100% The company tries to maintain an inventory of 25 percent of the following month's sales. The company expects to have 1,125 suits on hand on June 30, 2011. Knab pays an average of $146 per suit. The company pays for 70 percent of its purchases in the month of purchase and the remaining 30 percent in the month after purchase. The following monthly selling and administrative expenses are planned for the quarter, though advertising will have a onetime $30,000 increase in August. Fixed Overhead Variable Cost/Unit Depreciation $ 9,000 Rent 40,000 Advertising 84,000 Salaries 150,000 Bad debts $9.00 On September 30, the company plans to purchase $45,000 of new office equipment. However, no additional depreciation will be recorded in the third quarter. Knab wants to maintain a minimum cash balance of $20,000. An open line of credit at a local bank allows the company to borrow up to $100,000 per quarter in $1,000 increments. All borrowing is done at the beginning of the month, and all repayments are made at the end of a month in $1,000 increments. Accrued interest is paid only when principal is repaid. The interest rate is 12 percent per year. Accrued expenses from the second quarter will be paid in July. Knab's tax rate is 30 percent. The June 30, 2011 balance sheet is budgeted as follows: June 30 Cash $ 21,000 Accounts receivable 180,000 Inventory 164,250 Plant & equipment 540,000 Accumulated depreciation (135,000) Total assets $770,250 Accounts payable $175,000 Accrued expenses 75,000 Common stock 300,000 Retained earnings 220,250 Total liabilities and equities $770,250 Required a. Prepare all components of Knab's master budget for the third quarter of 2011. b. Prepare a proforma income statement for the third quarter of 2011. c. Prepare a proforma balance sheet as of September 30, 2011