Munoz Company is a retail company that specializes in selling outdoor camping equipment. The company is considering opening a new store on October 1, year 1. 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.

1. October sales are estimated to be $340,000, of which 40 percent will be cash and 60 percent will be credit. The company expects sales to increase at the rate of 20 percent per month. Prepare a sales budget.

2. 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.

3. The cost of goods sold is 70 percent of sales. The company desires to maintain a minimum ending inventory equal to 20 percent of the next months cost of goods sold. However, ending inventory of December is expected to be $12,900. Assume that all purchases are made on account. Prepare an inventory purchases budget.

4. The company pays 70 percent of accounts payable in the month of purchase and the remaining 30 percent in the following month. Prepare a cash payments budget for inventory purchases.

5. Budgeted selling and administrative expenses per month follow.

6. 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.

h.

i.

j.

Salary expense (fixed) Sales commissions Supplies expense Utilities (fixed) Depreciation on store fixtures (fixed)* Rent (fixed) Miscellaneous (fixed) $18,900 4% of Sales 2% of Sales $ 2,300 $ 4,900 $ 5,700 $ 2,100 *The capital expenditures budget indicates that Munoz will spend $146,600 on October 1 for store fixtures, which are expected to have a $29,000 salvage value and a two-year (24-month) useful life. g. Munoz 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 2 percent per month in cash on the last day of the month. To be prudent, the company desires to maintain a $21,000 cash cushion. Prepare a cash budget. h. Prepare a pro forma income statement for the quarter. i. Prepare a pro forma balance sheet at the end of the quarter. j. Prepare a pro forma statement of cash flows for the quarter. Cash Budget October November December S 0 136,000 136,000 367,200 367,200 440,640 440,640 Section 1: Cash Receipts Beginning cash balance Add: Cash receipts Total cash available Section 2: Cash Payments For inventory purchases Purchase of store fixtures Interest expense For selling and administrative expenses 290,060 206,584 146,600 296,453 0 0 0 353,184 296,453 290,060 Total budgeted disbursements Section 3: Financing Activities Borrowing (repayment) (217,184) 70,747 150,580 Ending cash balance S (217,184) S 70,747 S 150,580 Prepare a pro forma income statement for the quarter. MUNOZ COMPANY Pro Forma Income Statement For the Quarter Ended December 31, Year 1 0 0 S 0 Prepare a pro forma balance sheet at the end of the quarter. (Amounts to be deducted should be indicated by a minus sign.) MUNOZ COMPANY Pro Forma Balance Sheet December 31, Year 1 Assets 0 S Total assets Liabilities Equity Total liabilities and equity S 0 Prepare a pro forma statement of cash flows for the quarter. (Cash outflows should be indicated with a minus sign.) MUNOZ COMPANY Pro Forma Statement of Cash Flows For the Quarter Ended December 31, Year 1 Cash flows from operating activities S 0 Net cash flows from operating activities Cash flows from investing activities Cash flow from financing activities S 0