Laura Smith owns a brand name clothing store. The business has been doing well and making good profit. Following is the balance sheet of the store on 31 December 2014.

Lauras Clothing Store

Balance Sheet

31 December 2014

Cash	$8,750
Shop equipment (net)	22400
Inventory	33,250
Accounts receivable	10,500
Total Assets	$74,900
Accounts payable	$15,750
Owners equity, capital	59,150
Total Liabilities and Owner's Equity	$74,900

On 2 January 2015 Laura went to her bank to get a loan for her business. The bank agreed to loan her $17,500 under the following conditions. First, the note payable would be a three-year note, so the business would repay $17,500 plus $5,250 interest on 31 December 2017. Second, she must prepare a forecasted classified income statement for 2015 to show that the business expects to earn a net income of at least $38,500 and that it will have satisfactory profit margin and return ratios. Third, she must prepare a forecasted cash flow statement for 2015 that shows the business expects to have cash on hand at the end of 2015 of at least $35,000 (including the cash from the bank loan) and that it will have satisfactory operating cash flow ratios. Finally, she must prepare a forecasted classified balance sheet as of 31 December 2015, that shows a current ratio of at least 3.0 and debt ratio of no more than 40%. Laura has never prepared any forecasted financial statements. She understands, however, that they are prepared using the best estimates she can make, based on the shops previous operations and her future expectations.

Laura has come to you for help with the following information.

(a) Sales for 2015 are expected to be $280,000. Of these, half will be cash sales and half credit

sales. There are no cash discounts. Of the credit sales, 10% will not be collected until 2016. The accounts receivable on 31 December 2014 will be collected in 2015.

(b) Purchases of inventory for 2015 are expected to be $175,000. All purchases are on credit; there are no cash discounts. Of the purchases, 12% will not be paid until 2016. The accounts payable on 31 December 2014 will be paid in 2015.

(c) Sales returns and purchases returns are expected to be insignificant.

(d) The businesss gross profit percentage has been 40% of sales, and this rate is expected in 2015.

(e) The shop rents space in a local shopping center. The rent is $700 per month; the rent for the whole year is due on 6 January 2015.

(f) The shop equipment that originally cost $28,000 has a 10-year estimated life, after which it is expected to have no value.

(g) Laura pays her one salesperson a basic salary of $24,500 per year, plus 10% of gross sales. The total salary for 2015 will be paid in cash by the end of the year.

(h) Laura expects to withdraw $28,000 during 2015 to cover personal living expenses.

(i) Other operating expenses are expected to be $5,600 in 2015; these will be paid in cash by the end of the year.

You determine that the information Laura has gathered is reasonable and includes her best estimates.

Required:

1-Prepare a forecasted classified income statement for 2015 and show supporting calculations.

2-Prepare a forecasted cash flow statement for 2015. Use the direct method for operating cash flows and show supporting calculations.

3-Prepare a forecasted classified balance sheet as of 31 December 2015 and show supporting calculations.