You are the sole shareholder and operator of a small incorporated business that purchases off-brand Wedding Dresses and re-sells them. You started your business five years ago. The following data have been assembled to assist in the preparation of the master budget for the first quarter (January, February and March) of 2022.

As of December 31, 2021, your company had the following balance sheet:

Graceful Gowns Ltd.
Balance Sheet
December 31, 2021
Cash	$ 8,000		Accounts payable	$ 90,000
Accounts receivable	94,000		Taxes payable	2,400
Inventory	20,000		ST loan interest payable	80
Prepaid insurance	7,000		ST loan payable	8,000
Total current assets	129,000		Total current liabilities	100,480
Equipment	35,000		LT Loan payable	25,000
Accumulated amortization	7,000		Total liabilities	125,480
Net equipment	28,000		Common shares*	10,000
			Retained earnings	21,520
Total assets	$ 157,000		Total liabilities and equity	$ 157,000
* 10,000 common shares, issued for $1 each

Company Information

The company sells each dress for $800. Actual sales for November were 150 units and for December were 175 units. Projected sales for January are 200 units, 225 for February, 250 for March, and 275 for April.

Sales are all on account and 50% of the cash for sales is collected in the month of sale, 30% is collected in the following month, and the remaining 20% is collected in the month after that.

The company purchases enough units each month to cover the current months sales and maintain an ending inventory equal to 20% of the following months projected sales. Each unit costs the company $500. Inventory purchases are paid for in the month following purchase.

The company is expected to incur and pay fixed operating expenses of $3,000 per month.

On August 1, 2021, the company paid $12,000 for one years insurance coverage. Hint: think back to adjusting entries from Chapter 3 of BUAD111 Financial Accounting 1 for how to deal with this.

Variable operating expenses are projected to be 10% of sales and are paid in the month incurred.

Interest is paid monthly on the long-term loan at a rate of 6% per year. They are also required to make quarterly principal payments, the next is due at the end of March for $2,500.

Equipment costing $35,000 will be purchased for cash at the beginning of January. All equipment is depreciated on a straight-line basis over 10 years with no residual value. Hint: think back to adjusting entries from Chapter 3 of BUAD111 Financial Accounting 1 for how to deal with this.

You pay salaries totalling $4,000 each month. For simplicity, ignore all payroll tax implications.

You sell 1,000 additional common shares to your uncle for $1.00 per share at the beginning of February.

You will declare and pay a dividend of $8,000 at the beginning of February.

Income tax expense for this small business is calculated at 30% of the earnings before taxes. The company pays income tax instalments of $1,250 per month.

The company must maintain a minimum cash balance of $15,000. A short-term loan is available to cover any shortfall. Interest is paid monthly on the previous month's loan balance at a rate of 12% per year. Any cash above $15,000 available at month end is used to reduce any existing short-term loan. The interest for the short term debt should be calculated and shown separately from the long term debt. Both borrowings and repayments are assumed to occur at the beginning of the month.

Requirements and Check Figures - Please read these all very carefully!!!

The items in the budget should appear in the following order. Note that when you are showing your schedules, they should flow down a worksheet, so balance sheet first, then cash receipts schedule underneath it and so on. Please do not flow the different schedules across the page or in different tabs.

The balance sheet for December 31, 2021 (as given above).

A sales forecast in units and dollars.

Check figure: March sales in dollars should be $200,000.

A cash receipts schedule for January, February and March.

Check figure: Cash receipts for January should be $146,000.

A purchases schedule in units for January, February and March. Check figure: March unit purchases should be 255 units.

A cash payments schedule for January, February and March.

Check figure: February total cash payments should be $137,060.

A cash budget for January, February and March, including a calculation of cumulative loan at the bottom.

Check figures: February ending cash should be $26,485 and cumulative loan should be $0.

The pro-forma income statements for January, February and March. You should also have a total column which totals all three months.

Subtotals for EBIT and EBT should be included.

List all expenses separately (do not combine).

Show long-term and short-term interest separately.

Hint: Cost of goods sold is not the same thing as purchases.

Check figures: Februarys earnings after taxes should be $28,554 and March COGS should be $125,000 and Amortization Expense is $583 (rounded) per month.

A pro-forma retained earnings schedule for the quarter ended March 31 (not for each month).

Check figure: Ending retained earnings should be $99,053.

A pro-forma balance sheet at March 31. You do not have to complete balance sheets for January or February.

Hint: Consider what will cause balances to change from the December 31, 2021 balance sheet.

Prepaid insurance will be the opening amount less the amount expensed on the income statement.

Tax payable will be the opening balance plus total tax expense less total tax instalments.

Check figure: Total assets should be $295,360.