Question

The management estimates total sales for the period January through June based on
actual sales from the immediate past six months. The following assumptions are made:
1. The Sales were $150,000 in January 2018 and then the sales grew by 10% each
month for the first five months (February to June). The sales are expected to grow
by 5% each month thereafter.
2. 50% of the Sales are collected in the same month. 45% of the sales are collected
in the following month and remainder are not collected.
3. The Purchases are 20% of sales and paid in the same month.
4. Wages and Salaries are $10,000 each month and paid in the same month.
5. Depreciation expense is $5,000 each month.
6. An equipment worth $100,000 will be purchased with cash in October.
7. The company’s debt is $50,000 and the company pays coupon payments in June
and December of each year. The coupon rate is 10% per year.
8. Rent Expenses will be $5000 and will be paid at the end of each calendar quarter

Answer 1

Below is the solution in the tabular form:

Months	Jan 2018	Feb 2018	Mar 2018	Apr 2018	May 2018	June 2018
Sales	150,000 (Given)	165,000 150000*(1+10%)	181,500 165,000*(1+10%)	199,650 181,500*(1+10%)	219,615 199,650*(1+10%)	241,577 219,615*(1+10%)
Sales collected (a)(50% of current month+45% of previous month)	75,000	150,000	165,000	181,500	199,650	219,615
Purchases (-20% of Sales) (b)	-30,000	-33,000	-36,300	-39,930	-43,923	-48,315
Wages and Salaries (c)	-10,000	-10,000	-10,000	-10,000	-10,000	-10,000
Coupon payment (d)	0	0	0	0	0	-2,500 (-10%*50000/2)
Rent Expenses (e)	0	0	-15000 (-5000*3)	0	0	-15000 (-5000*3)
Net Sales (a+b+c+d+e)	35,000	107,000	103,700	131,570	145,727	143,800

Following assumtions were used while making solution:

1. Depreciation, being a non cash expense, not used in the calculation of net sales
2. Rent expenses of $5000 are monthly