Master budget and pro forma statements

The following trial balance was drawn from the records of Havel Company as of October 1, 2010.

Cash	$ 16,000
Accounts receivable	60,000
Inventory	40,000
Store equipment	200,000
Accumulated depreciation		$ 76,800
Accounts payable		72,000
Line of credit loan		100,000
Common stock		50,000
Retained earnings		17,200
Totals	$316,000	$316,000

(1) Based on the following information, prepare a sales budget and a schedule of cash receipts for October, November, and December. Sales for October are expected to be $180,000, consisting of $40,000 in cash and $140,000 on credit. The company expects sales to increase at the rate of 10 percent per month. All of accounts receivable is collected in the month following the sale.

(2) Based on the following information, prepare a purchases budget and a schedule of cash payments for inventory purchases for October, November, and December. The inventory balance as of October 1 was $40,000. Cost of goods sold for October is expected to be $72,000. Cost of goods sold is expected to increase by 10 percent per month. The company expects to maintain a minimum ending inventory equal to 20 percent of the current month cost of goods sold. Seventy-five percent of accounts payable is paid in the month that the purchase occurs; the remaining 25 percent is paid in the following month.

(3) Based on the following selling and administrative expenses budgeted for October, prepare a selling and administrative expenses budget for October, November, and December. Cash payments for sales commissions and utilities are made in the month following the one in which the expense is incurred. Supplies and other operating expenses are paid in cash in the month in cash in the month in which they are incurred.

Sales commissions (10% increase per month)	$ 7,200
Supplies expense (10% increase per month)	1,800
Utilities (fixed)	2,200
Depreciation on store equipment (fixed)	1,600
Salary expense (fixed)	34,000
Rent (fixed)	6,000
Miscellaneous (fixed)	1,000

b. Supply the missing information in the following pro forma income statement and balance sheet for the fourth quarter of 2010. The statements are prepared as of December 31, 2010.

Income Statement
Sales Revenue		$ ?
Cost of Goods Sold		?
Gross Margin		357,480
Operating Expenses		?
Operating Income		193,290
Interest Expense		(2,530)
Net Income		$190,760
Balance Sheet
Assets
Cash		$ 9,760
Accounts Receivable		?
Inventory		?
Store Equipment	$200,000
Accumulated Depreciation Store Equipment	?
Book Value of Equipment		118,400
Total Assets		$314,984
Liabilities
Accounts Payable		?
Utilities Payable		?
Sales Commissions Payable		?
Line of Credit		23,936
Equity
Common Stock		50,000
Retained Earnings		?
Total Liabilities and Equity		$314,984

c. Indicate whether Havel will need to borrow money during October.