Fanning Company is a retail company that specializes in selling outdoor camping equipment. The company is considering opening a new store on October 1, 2019. The company president formed a planning committee to prepare a master budget for the first three months of operation. As budget coordinator, you have been assigned the following tasks:

Required

a. October sales are estimated to be $230,000, of which 45 percent will be cash and 55 percent will be credit. The company expects sales to increase at the rate of 20 percent per month. Prepare a sales budget.

b. The company expects to collect 100 percent of the accounts receivable generated by credit sales in the month following the sale. Prepare a schedule of cash receipts.

d. The cost of goods sold is 60 percent of sales. The company desires to maintain a minimum ending inventory equal to 10 percent of the next months cost of goods sold. However, ending inventory of December is expected to be $12,400. Assume that all purchases are made on account. Prepare an inventory purchases budget.

c. The company pays 80 percent of accounts payable in the month of purchase and the remaining 20 percent in the following month. Prepare a cash payments budget for inventory purchases.

e. Budgeted selling and administrative expenses per month follow:

Salary expense (fixed)	$	18,400
Sales commissions		5	% of Sales
Supplies expense		2	% of Sales
Utilities (fixed)	$	1,800
Depreciation on store fixtures (fixed)*	$	4,400
Rent (fixed)	$	5,200
Miscellaneous (fixed)	$	1,600

*The capital expenditures budget indicates that Fanning will spend $182,400 on October 1 for store fixtures, which are expected to have a $24,000 salvage value and a three-year (36-month) useful life.

Use this information to prepare a selling and administrative expenses budget.

f. Utilities and sales commissions are paid the month after they are incurred; all other expenses are paid in the month in which they are incurred. Prepare a cash payments budget for selling and administrative expenses.

g. Fanning borrows funds, in increments of $1,000, and repays them on the last day of the month. Repayments may be made in any amount available. The company also pays its vendors on the last day of the month. It pays interest of 1 percent per month in cash on the last day of the month. To be prudent, the company desires to maintain a $16,000 cash cushion. Prepare a cash budget.

Please answer question g. ( Interest expense, borrowing payment)

Cash Budget
	October	November	December
Beginning cash balance	$0
Add: Cash receipts	103,500	250,700	300,840
Cash available	103,500	250,700	300,840
Less: Payments
For inventory purchases	123,648	166,042	186,780
For selling and administrative expenses	29,800	44,020	47,424
Purchase of store fixtures	182,400	0	0
Interest expense	0
Total budgeted payments	335,848	210,062	234,204
Payments minus receipts
Surplus (shortage)	(232,348)	40,638	66,636
Financing activity
Borrowing (repayment)
Ending cash balance	$(232,348)	$40,638	$66,636

Fanning Company is a retail company that specializes in selling outdoor camping equipment. The company is considering opening a new store on October 1, 2019. The company president formed a planning committee to prepare a master budget for the first three months of operation. As budget coordinator, you have been assigned the following tasks:

a. Prepare a pro forma income statement for the quarter.

b. Prepare a pro forma balance sheet at the end of the quarter.

c. Prepare a pro forma statement of cash flows for the quarter.

Prepare a pro forma income statement for the quarter.

FANNING COMPANY
Pro Forma Income Statement
For the Quarter Ended December 31, 2019
Sales revenue	$837,200
Cost of goods sold	502,320
Gross margin	334,880
Selling and administrative expenses	152,804
Operating income	182,076
Interest expense
Net income	$182,076

Prepare a pro forma balance sheet at the end of the quarter. (Amounts to be deducted should be indicated by a minus sign.)

FANNING COMPANY
Pro Forma Balance Sheet
December 31, 2019
Assets
Cash
Accounts receivable		460,460
Inventory		48,832
Store fixtures	182,400
Accumulated depreciation	13,200
Book value of fixtures		195,600
Total assets		704,892
Liabilities
Accounts payable		514,720
Utilities payable		1,800
Sales commissions payable		41,860
Line of credit liability
Equity
Retained earnings
Total liabilities and equity		558,380

Prepare a pro forma statement of cash flows for the quarter. (Amounts to be deducted should be indicated by a minus sign.)

FANNING COMPANY
Pro Forma Statement of Cash Flows
For the Quarter Ended December 31, 2019
Cash flows from operating activities
Cash receipts from customers	$655,040
Cash payments for inventory	(476,470)
Cash payments for selling and administrative expenses	(121,244)
Cash payments for interest expense
Net cash flows from operating activities		$57,326
Cash flows from investing activities
Cash payment for store fixtures		(182,400)
Cash flow from financing activities
Net inflow from line of credit
Net increase in cash
Plus: Beginning cash balance
Ending cash balance		$0