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Q.1: CASH MANAGEMENT (25 Marks)
In preparation for the quarterly cash budget, the following revenue and cost information have been compiled. You are required to prepare and evaluate a cash budget for the months of October, November, and December based on the information shown below:
Month | Sales | Purchases |
August (actual) | $3,000,000 | $3,500,000 |
September (actual) | $4,500,000 | $2,000,000 |
October (forecast) | $1,000,000 | $ 500,000 |
November (forecast) | $1,500,000 | $ 750,000 |
December (forecast) | $2,000,000 | $1,000,000 |
* The firm collects 60 percent of sales for cash and 40 percent of its sales one month later.
* Interest income of $50,000 on marketable securities will be received in December.
* The firm pays cash for 40 percent of its purchases.
* The firm pays for 60 percent of its purchases the following month.
* Salaries and wages amount to 15 percent of the preceding month’s sales.
* Sales commissions amount to 2 percent of the preceding month’s sales.
* Lease payments of $100,000 must be made each month.
* A principal and interest payment on an outstanding loan is due in December of $150,000.
* The firm pays dividends of $50,000 at the end of the quarter.
* Fixed assets costing $600,000 will be purchased in December.
* Depreciation expense each month of $45,000.
The firm has a beginning cash balance in October of $100,000 and maintains a minimum cash balance of $200,000.
Q.2: PRO-FORMA FINANCIAL STATEMENTS (25 Marks)
Hereafter is the income statement of Ace Manufacturing, Inc for the year ended 31, 2011.
Ace Manufacturing, Inc.
For the Year Ended December 31, 2011 |
Sales | $2,000,000 |
Less: Cost of goods sold | 1,200,000 |
Gross profit | $800,000 |
Less: Selling expense | 200,000 |
General & administrative expense | 60,000 |
Less: Depreciation | 40,000 |
Operating profit | $...
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