FNEC 2600 Budget Case: Fall 2017 quipment S250 S12,000 While attending West State University, Sydney Brady recognized there was business opportunity to silk-screen shirts for student organization and started a business called "Silk Screen Design at the beginning of last year (2016) Sydney obtained a 12-month $40,000 loan in January of 2016 to help get her business started. The interest rate on the note was 6%, and the terms require payment of both the principal and interest to be remitted on January 5 of 2017,2 The bank that loaned Sydney the $40,000 required her to put together detailed budgets as part of the loan application process. Sydney found this to be very helpful in getting her business started and has decided to go through the budgeting process again for 2017. Using the December 31, 2016 balance sheet along with the other information that follows, you are going to complete the 2017 bucgeting process for Sydney. Press that applies inl Light exposure table (dries the ink) Display furniture for retail area design and Dryer conveyer belt Computer hardware & software for 2,00010 years 4,00010 years 5,2004 years 3,52010 years 3,0005 years 40 35 75 administrative and sales activities Silk-Screen Design Balance Sheet December 31, 2016 Blank T shirts is the only direct material used in the production process. The cost per shirt was ss in 2016 but will Jump to S9.00 in 2017, Credit terms will carry over from 2016; 40% due in the quarter of purchase with the remaining 60% to be paid in the following quarter. Sydney will maintain an ending inventory o:blank shirts equal to 20% ofthe next quarter's sales volume. Shirts to be silk-screened are considered direct materials inventory. Sydney uses FIFO to account for the direct materials inventory and will carry no beginning or ending inventory for the finished products. Sydney estimates the rumber of shirts to be sold in the next five quarters, beginning January 2017, to be Assets Cash Accounts Receivable T-shirt (Materials) Inventory Total Assets $187,326 41,580 24,000 $252,906 First Quarter, year 2017 Second Quarter, year 2017 Third Quarter, year 2017 Fourth Quarter, year2 First Quarter, year 2018 5,000 0,000 8,000 7,000 16,000 Liabilities & Owner's Equity Accounts Payable Wages Payable Notes Payable Interest Payable Income Taxes Payable Total Liabilities $52,800 900 40,000 2,400 36,186 132,286 h shirt will be S15. 10 percent of sales are to be cash sales with The selling price of the remaining sales on account. Some accounts had to be written offlast year, so one percent o credit sales are going to be budgeted as bad debt in each quarter of 2017. Assume no write-ofEs will occur until 2018, Of the collectible credit sales, Sydney expects 65% in the quarter of the sale and the remaining collectible balance to be received in the following quarter. eac Capital or Retained Earnings 120,620 Total Liabilities & Owner's Eau itv252.90e-' The estimated cost of ink used in the silk screen process will be S37,500 in 2017 and will be applied quarterly based on the number of shirts produced. This cost is treated as an indirect material cost. Other Information: Sydney rents all of her equipment and furnishings but has decided to purchase the equipment and furmishings from the lessor at the end of lease term on Apri ,2017. The bank has agreed to loan Sydney an amount equal to the total cost of the furniture and equipment ($29,720). The 12 month, 5% loan will be dated April 1, 2017, Interest and principal will become due on March 31, 2018. A detail listing of the items that Sydney currently rents and will purchase follows Sydney will depreciate all items on a straight line basis with ro salvage value: Knowing that the silk screen process is labor intensive, Sydney plans to hire six students to help with the process. Based on Sydney's sales projections, 5,500 hours of labor will be incurred during 2017 at an hourly rate of S12. Sydney expects that 92% ofeach quarter's labor cost will be paid in the quarter incurred. The remaining cost will be paid in the following quarter