Ralphs Horse Feed Ltd. is a retailer that sells bales of specialized horse feed. The company is planning its cash needs for the month of January, 2021. The statement of financial position showed the following at December 31, 2020. Assets Current Cash $ 25,000 Accounts receivable 80,000 Inventory 12,000 117,000 PPE, net 900,000 $1,017,000 Liabilities Current Operating loan $190,000 Accounts payable 12,514 202,514 Non-current borrowings 700,000 902,514 Shareholders Equity Share capital 70,000 Retained earnings 44,486 114,486 $1,017,000 Other information: a. Sales are 30% for cash and 70% on credit each month. January sales are projected to be $120,000 (2,000 bales). The gross profit ratio [[sales COGS)/sales] is estimated at 50%. b. Credit sales are collected over a three-month period with 20% collected in the month of sale, 70% in the following month, and 10% in the second month following sale. November 2020 credit sales totaled $80,000 and December credit sales totaled $90,000. c. 60% of a months inventory purchases are paid for in the same month. The remaining 40% are paid in the following month. Accounts payable at December 31, 2020 relate solely to inventory purchases. d. The company maintains its ending inventory levels at 20% of the cost of the merchandise to be sold in the following month. February 2021 sales are budgeted at $110,000. The gross profit ratio is estimated to be 45%. e. Variable expenses besides cost of goods sold relate to commissions on sales. Commissions amount to 10% of each months total sales. They are paid in the month incurred. f. Fixed expenses total $15,000 per month. They are composed of $5,000 of depreciation, $8,000 of salaries and benefits, and $2,000 of other operating expenses. All non-depreciation items are paid in cash by the end of each month. g. The company pays a $2,000 monthly cash dividend to shareholders. h. The operating loan is not due on demand. Interest on the operating loan and non-current debt is 1% per month, calculated on the balance at the start of each month. Interest is paid in cash each month. i. The non-current loan is repayable at $1,000 per month. j. The corporate income tax rate is 25% of income before income taxes. Income taxes will be paid in cash in April 2021. No income taxes were owing at December 31, 2020. k. January budgeted cash purchases of property, plant, and equipment are $120,000. Depreciation will be unaffected. l. Management wants to maintain a cash balance of $20,000 at the end of each month. The maximum operating loan is $200,000. Additional non-current borrowing will be incurred to make up any cash deficiency.

Required: Only Need Part 3 that was bold

1. (10 marks) Record the above information in a budget transaction worksheet like the one shown on the following page.

ASSETS

LIABILITIES

+

S/H EQUITY

Trans.

Cash

+

Acc. Rec.

+

Invent.

+

PPE

=

Op. Loan

+

Acc. Pay.

+

L/T Debt

+

Share Capital

+

Ret. Earn.

Desc.

cf.

25,000

80,000

12,000

900,000

190,000

12,514

700,000

70,000

44,486

2. (4 marks) Prepare a statement of financial position at January 31, 2021 and a budgeted income statement, statement of changes in equity, and statement of cash flows for the month ended January 31, 2021. Show all calculations. Prepare the income statement in contribution margin format.
3. (6 marks) Assume the actual results for January 2021 are as follows, and that no additional staff were hired:

Sales (2,200 bales) $121,000

Commissions expense 10,890

Cost of goods sold 54,450

Depreciation 5,000

Salaries expense 8,500

Other operating expenses 2,000

Interest expense 11,125

Income tax expense 7,259

Analyze the variances and suggest one possible explanation for each one. Assume that flexible budget amounts for fixed expenses are the same as master budget amounts.

Only need part 3) That's bold