Question

It is January 1^st, 2014 and Oscar D’Souza has decided to start a new business. He wants to forecast the first year’s Income Statement and Balance sheet. He believes the assumptions below are reasonable – and wants you to assist him by creating the forecasted statements. You agree. Please construct an Income Statement and Balance Sheet from the information provided below. (25 points)

-First year sales will total $100,000

-Gross margins will be 50%

-Operating margins will be 20%

-Accounts Receivables will be about 15% of sales

-Inventory will be 12% of sales

-Accounts Payable will be 5% of sales

-Accrued expenses payable will be 7% of sales

-The Bank of Connecticut will provide a loan of $30,000. The annual interest will be 8%, compounded annually. Interest only payments are needed – until the loan is due in 5 years, where a balloon payment for the full balance must be paid.

-The combined federal and provincial tax rates will be 30%

-Capital equipment purchases will be made at the start of the year. These will total $35,000. These will depreciate at 10% per year

-D’Souza wants ending cash to be $24,500; he feels he needs this on hand at year-end

-D’Souza will provide any other capital needed in the form of equity financing

Answer 1

Income Statement
Sales	100,000
Less:COGS	50000	=100000*50%
Gross Profit	50000	=100000*50%
Less:Operating Expenses	30,000	balancing figure =50000-20000
Operating Profit	20,000	=100000*20%
Less: Interest	2,400	=30000*8%
Profit before tax	17,600
Less: Taxes@30%	5,280	=17600*30%
Profit after tax	12,320
Balance Sheet
Capital Equipment	35000		Equity Financing	28,680	=83000-5000-7000-30000-12320
Less:Accumulated depreciation	3500	=35000*10%
	31500		Retained Earning	12,320
Accounts Receiavable	15,000	=100000*15%	Accounts Payable	5,000	=100000*5%
Inventory	12,000	=100000*12%	Accrued Expenses Payable	7,000	=100000*7%
Cash	24500		Bank Loan	30000
Total	83000			54320