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In: Accounting

this is an accounting question An organization is considered to be begin an income generating project...

this is an accounting question

An organization is considered to be begin an income generating project to get a better financial position .The Board of Directors requested the accountant help in preparing an operating budget including a cash budget for the six months ending 31/12/2019. The Board of Directors has promised to secure $100,000 for this project if it proves to be profitable.

You gathered the following information:

  • $100,000 is expected to be secured by the Board of Directors and the project will start on 1/7/2019.
  • A building will be rented at an annual rent fee of $24,000. It is expected that the rent of the first three months will be paid in advance.
  • It is expected that utilities will be $5,000 per quarter payable at the beginning of the following quarter.
  • Furniture will be purchased for $4,080 in July 2019. The estimated useful life of this equipment is 2 years.

  • Equipment will be purchased for $79,200. 50% will be paid at the time of purchase i.e. in July 2020 and 50% in October 2020. The estimated useful life of this equipment is 4 years.
  • A vehicle will be purchased for $8,160 in July 2019. Annual insurance is $1,500 payable in July 2019. The estimated useful life of the vehicle is 4 years.
  • It is estimated that raw materials usage will average $25,000 monthly. It is also estimated that purchases of raw materials will be $50,000 in July 2019, $60,000 in September 2019, and $60,000 in November 2019.
  • It is expected that the payment of supplies will be made in the month following the purchase.
  • Salaries are expected to be $2,000/month for the first quarter and $3,000 per month for the second quarter.  
  • Market analysis showed the following sales estimates. Sales will be on credit with collections after 2 months of sales.
  • Other operating expenses are estimated at $2,500 per month.

July 16

Aug 16

Sept 16

Oct 16

Nov 16

Dec 16

Estimated Sales in $

0

20,000

30,000

50,000

100,000

100,000

Required: Prepare in good form

a. A profit and loss budget for the 6 months ending 31/12/2019.

b. A balance sheet budget as at 31/12/2019

c. A cash flow budget for the 6 months ending 31/12/2019.

d. As a Board of Director Member would you approve to fund the project. Why?

           

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