Problem

AudioFile Products Ltd$.$ is a retailer of sound systems. The company is planning its cash needs for the month of January $2024.$ In the past, AudioFile has had to borrow money during the post$-$Christmas season to offset a significant decline in sales.

The statement of financial position showed the following at its fiscal year$-$end, December $31,2023.$

Assets

Current

Cash $$20,000$

Accounts receivable $280,000$

Inventory $126,000$

$426,000$

PPE, net $4,000,000$

$$4,426,000$

Liabilities

Current

Operating loan $$200,000$

Accounts payable $190,400$

$390,400$

Non$-$current borrowings $3,000,000$

$3,390,400$

Shareholders$$ Equity

Common shares $70,000$

Retained earnings $965,600$

$1,035,600$

$$4,426,000$

$$

Other information:

a$.$ Cash collection

i$.$ December credit sales $$400,000$

ii$.\%$ cash sales each month $0\%$

iii. $\%$ credit sales collected in same month $30\%$

iv$.\%$ credit sales collected in next month $70\%$

b$.$ January total sales $$300,000$

c$.$ Inventory information

i$.$ February total sales $$250,000$

ii$.$ Gross profit ratio all months $30\%$

iii. $\%$ purchases paid in cash same month $20\%$

iv$.\%$ inventory on hand needed for next month$$s sales $60\%$

d$.$

Accounts payable at Dec. $31$ all relate to inventory purchases and will be paid in full in January

e$.$ Variable expenses as $\%$ of total sales $$0$

f$.$ Fixed expenses

i$.$

Depreciation, including any January budgeted PPE purchases $$10,000$

ii$.$ Other fixed operating expenses, paid each month $$20,000$

g$.$

Interest is paid monthly on opening balances of the operating loan and non$-$current debt. Interest rate per month: $1\%$

h$.$

Corporate income tax rate

Income taxes are paid at the end of the fiscal year. $20\%$

i$.$ Monthly cash dividends paid to shareholders $$5,000$

j$.$ Budgeted PPE purchases for January $$0$

k$.$ January repayments of principal on non$-$current debt $$10,000$

l$.$ Desired minimum cash balance at end of January $$20,000$

m$.$ Maximum operating loan balance at end of January $$200,000$

n$.$

Any excess cash will be used to pay down the operating loan.

o$.$

Any cash not able to be provided by the operating loan will be raised by issuing common shares.

$$

Required:

$1.$ Using a format like the budget worksheet on the following page, record the above information.

$2.$ Prepare a statement of financial position at January $31,2024$ and budgeted income statement, statement of changes in equity, and statement of cash flows for the month ended January $31,2024.$ Show all calculations. For SCF purposes, assume the operating loan is part of cash and cash equivalents.

$3.$ Apprise management of budgeted January operating loan needs and the dollar amount of any shares that may need to be issued.

ASSETS $=$ LIABILITIES $+$ S$/$H EQUITY

Trans. Cash $+$ Acc. Rec. $+$ Invent. $+$ PPE $=$ Op$.$ Loan $+$ Acc. Pay. $+$ L$/$T Debt $+$ Common Shares $+$ Ret. Earn. Desc.

Cf$.20,000280,000126,0004,000,000200,000190,4003,000,00070,000965,600$

Totals