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Exotic Imports, Inc. was organized to import unusual gift items. The balance sheet on April 1, 20x0, the date the company was organized, follows. Exotic

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Exotic Imports, Inc. was organized to import unusual gift items. The balance sheet on April 1, 20x0, the date the company was organized, follows. Exotic Imports, Inc. Balance Sheet April 1, 20X0 Equities Capital stock $100,000 Assets Cash Buildings and equipment Land $30,000 50,000 20,000 $100,000 $100,000 The owners are worried about the cash position of the company for the first three months of operations. They believe that cash flows will be favorable after June. The company plans to borrow any amount needed to carry it through the first quarter as soon as a minimum cash balance of $20,000 is reached. A line of credit of $20,000 has been arranged at the bank. Ignore interest. Bank loans are expected to occur at the beginning of the month and repayments of bank loans are expected to occur at the end of the month. Sales for the first six months are expected to be as follows: April $40,000 July $200,000 May $60,000 August $250,000 June $120,000 September $100,000 The gross margin on sales is expected to be 60%. All sales are credit card sales collected in the month following the sale. The company plans to purchase inventory each month to fulfill sales of that month. Variable selling expenses are expected to equal 20% of sales. Fixed selling and administrative expenses are expected to be $30,000 per month, including $1,000 of depreciation. Purchases, variable selling, and fixed selling and administrative expenses are paid in the following month. REQUIRED: A. Prepare a projected income statement by month for the first three months of operations. B. Prepare a cash budget by month for the first three months of operations. This cash budget should show how much the company has to borrow in each month to maintain a minimum cash balance of $20,000. C. Prepare a projected balance sheet at June 30, 20xo

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