Lunar Artistry Company needs to purchase new etching and finishing equipment. The owners hope to finance the costly equipment with cash on hand and a short term loan from Erie Bank. The CFO of Lunar Artistry Company has recently completed the sales forecast. She projects sales to increase by 10% each month over the previous month sales for the first quarter with the remaining months remaining constant.

The controller has been asked to prepare the master monthly budget for the first quarter 2021. In the process, the controller has accumulated the following information:

1. Projected Sales for December 2020 are $500,000.Credit sales are 80% of total sales with immediate cash sales as the other 20%. Of the credit sales, cash is collected 20% in the month of the sale and the remainder in the month following the sale.
2. Lunars cost of goods sold is generally 60% of the current month sales. All inventory is purchased on account. 40% of inventory purchases are paid for in the month of purchase with the remaining 60% paid the month following the purchase.
3. The controller has determined additional monthly expenses to be as follows:
   1. Salaries $55,000 Paid monthly
   2. Advertising $20,000 Paid Monthly
   3. Property Taxes $ 2,900 Paid Feb 28 and Aug 31
   4. Sales Commissions 1.2% of monthly sales
4. The owners of Lunar Artistry Company have selected etching and finishing equipment costing $175,000. They plan to pay cash for the equipment. If they do not have enough cash, assuming the company can maintain a $25,000 balance, the owners will take a short term loan from Erie Bank.The CFO has stated the current interest rate on short term loans is 6% and she anticipates the need for a six-month loan. Interest on short-term loans is payable monthly.
5. Interest is paid each March 31 and September 30 on the Mortgage Payable. The interest rate on the mortgage is 4%
6. The board of directors intends to declare a $40,000 dividend at the end of the first quarter.

REQUIRED:

1. Using the Excel template, complete the sales budget, cash receipt budget, purchase budget, cash disbursement budget and cash budget.
2. Prepare the Budgeted Income Statement, Budgeted Statement of Equity and Budgeted Balance Sheet.
3. As the CFO, write a short memo to the owners recommending whether to purchase the equipment and an appropriate month to make the purchase.

Projected Balance Sheet
December 31, 2020
Cash	$50,000		Accounts Payable	$180,000
Accounts Receivable	$270,000		Mortgage Payable	$300,000
Inventory	$154,000		Common Stock	$500,000
Buildings & Equipment	$626,000		Retained Earnings	$120,000
Total Assets	$1,100,000		Total Liabilities&Equity	$1,100,000

Sales Budget:

	December 2020	January 2021	February-21	March 2021	First Quarter Sales
Cash Sales	$100,000
Credit Sales	$400,000
Total Sales	$500,000

Cash Receipt Budget:

	January 2021	February-21	March 2021	First Quarter Sales
Cash Sales
Cash collections from credit sales Dec
Cash collections from credit sales Jan
Cash collections from credit sales Feb
Cash collections from credit sales Mar
Total Cash Receipts

Purchase Budget:

	December 2020	January 2021	February-21	March 2021	First Quarter Sales
Budgeted Cost of Goods Sold
Plus: Desired Ending Inventory $
Less: Expected beginning Inventory $
= Purchases

Cash Disbursement Budget:

	January 2021	February-21	March 2021	First Quarter Sales
Cash Payments from Inventory Purchases - Dec
Cash Payments from Inventory Purchases - Jan
Cash Payments from Inventory Purchases - Feb
Cash Payments from Inventory Purchases - Mar
Other Cash Expenses:
Salaries
Advertising
Sales Commissions
Total Cash Disbursements

Cash Budget:

	January 2021	February-21	March 2021	First Quarter Sales
Beginning Cash Balance
Add: Cash Receipts
Less: Cash Disbursements
Plus or Minus Other Items:
Ending Cash Balance

Income Statement:

Lunar Artistry Company
Projected Income Statement
March 31, 2021
Revenue
Expenses
Net Income

Statement of Equity:

Lunar Artistry Company
Projected Statement of Equity
March 31, 2021
Beginning Balance of Retained Earnings
Add: Net Income
Less: Dividend
Ending Balance of Retained Earnings

Balance Sheet:

Lunar Artistry Company
Projected Balance Sheet
March 31, 2021
Cash			Accounts Payable
Accounts Receivable			Mortgage Payable
Inventory
Buildings & Equipment		Common Stock
			Retained Earnings
Total Assets			Total Liabilities&Equity