In: Accounting
After answering A and B, I still keep getting this question with mixed answers, some people have interest from borrowing for the quarter and some people don't. Can you help? Thanks
Durianx Inc. distributes a electronic chessboards The following information was gathered to prepare the budget for the third quarter.
• Each unit of chessboard is budgeted to sell for an average price of $175. Unit sales are expected to be as follows:
June |
9,600 Units |
July |
9,700 Units |
August |
10,500 Units |
September |
11,900 Units |
October |
12,000 Units |
•Sales are made for cash and on credit. The following collection pattern is used to estimate monthly cash collections:
Cash sales |
30% |
Credit sales—month of sale |
40% |
Credit sales—month after sale |
26% |
Uncollectible |
4% |
Total |
100% |
•The company tries to maintain an inventory of 20% of the following month's sales. The company expects to have 1,940 Units on hand on June 30. Durianx pays an average of $125 per Units.
•The company pays for 60% of its purchases in the month of purchase and the remaining 40% in the month after purchase.
•The following monthly selling and administrative expenses are planned for the quarter.
July |
Aug |
Sept |
|
Depreciation |
$10,000 |
$20,000 |
$20,000 |
Rent |
30,000 |
30,000 |
30,000 |
Advertising |
50,000 |
50,000 |
50,000 |
Salaries |
350,000 |
350,000 |
370,000 |
Bad debts |
67,900 |
73,500 |
83,300 |
•On August 1st , the company plans to purchase $500,000 of new office equipment and a delivery truck. Additional depreciation is already accounted for in the above selling and administrative expenses.
• Durianx will collect the full $436,800 accounts receivable balance of June 30th in July. Durianx will pay the $481,000 of June Accounts Payable in July.
•Durianx wants to maintain a minimum cash balance of $40,000. An open line of credit at a local bank allows the company to borrow up to $500,000 per quarter in $1,000 increments.
•All borrowing is done at the beginning of the month, and all repayments are made at the end of a month in $1,000 increments. Accrued interest on the loan is paid only when principal is repaid. The interest rate is 12% per year. This means that if the loan is not reimbursed during the quarter then no interest expense is paid during that time.
•Durianx's tax rate is 30%.
•The June 30 balance sheet is budgeted as follows:
June 30 |
|
Cash |
$ 70,000 |
Accounts receivable |
436,800 |
Inventory |
242,500 |
Plant & equipment |
600,000 |
Accumulated depreciation |
(150,000) |
Total assets |
$ 1,199,300 |
Accounts payable |
$ 481,000 |
Common stock |
200,000 |
Retained earnings |
518,300 |
Total liabilities and equities |
$ 1,199,300 |
Required (Please answer A AND B)
Prepare a pro-forma income statement for the third quarter.
Prepare a pro-forma balance sheet as of September 30.