Question

The Cold Mountain Furnace Company is a retail store with locations across the eastern United States. The company’s projected income statement for its first year of operations, which ends December 31, 2018, and its projected balance sheet as of December 31, 2018, are shown below:

Sales	$ 4,000,000
Cost of Goods Sold	2,300,000
Gross Margin	1,700,000
Selling and Administrative Expenses	800,000
Net Income	$    900,000

Cash	$   660,000
Accounts receivable	150,000
Inventory	400,000
Property, plant, and equip. (net of accum. deprec.)	200,000
Total assets	$1,410,000
Accounts payable	$   110,000
Common stock	400,000
Retained earnings	900,000
Total liabilities and owner’s equity	$1,410,000

The company is currently forecasting its 2019 operational year. Anticipated Projections for 2019 follow (continues onto next page):

Budgeted Sales
First quarter	$1,050,000
Second quarter	$1,100,000
Third quarter	$1,150,000
Fourth quarter	$1,100,000

All sales are made on credit. Sales are collected in two portions, consisting of 85% in the quarter of the sale and 15% in the quarter following the sale. All of the accounts receivable as of December 31, 2018, will relate to sales in the fourth quarter of 2018.

The cost of goods sold is expected to increase to 60% of sales in 2019. Inventory is purchased in the quarter of expected sale. 80% of inventory purchases are paid for in the quarter of purchase and 20% are paid for in the quarter following purchase. Safety stock is maintained at all times.

The accounts payable balance as of December 31, 2018, will relate to inventory purchases made in the fourth quarter of 2018.

Selling and administrative costs are expected to increase to $225,000 per quarter in 2019. Of this quarterly amount, $10,000 is depreciation expense of the property, plant, and equipment.

The inventory balance at the end of 2019 is expected to be $400,000.

Required:

Prepare the Cold Mountain Furnace Company’s projected Income Statement and Balance Sheet for each quarterly reporting period of 2019. In addition, prepare the company’s projected Income Statement and Statement of Cash Flows for the full year of 2019. Assume that the company is not subject to federal, state, or local income tax.

Answer 1

Sales		$       4,000,000.00					Q1	Q2	Q3	Q4
Cost of goods sold		$       2,300,000.00
Gross Margin		$       1,700,000.00			Sales Data		$ 1,050,000.00	$ 1,100,000.00	$ 1,150,000.00	$ 1,100,000.00
Selling and Administrative OH		$          800,000.00
Net Income		$          900,000.00			Recovery		$ 1,042,500.00	$ 1,092,500.00	$ 1,142,500.00	$ 1,107,500.00
					15% previous Qr+ 85% present
Cash		$          660,000.00			CoGs		$      630,000.00	$      660,000.00	$      690,000.00	$      660,000.00
Accounts receivable		$          150,000.00
Inventory		$          400,000.00			Payment		$      614,000.00	$      654,000.00	$      684,000.00	$      666,000.00
Property, plant and equip		$          200,000.00			80% present Qr+ 20% previous
					Selling and Admin		$      215,000.00	$      215,000.00	$      215,000.00	$      215,000.00
Accounts payable		$          110,000.00
Common Stock		$          400,000.00
Retained Earning		$          900,000.00
Projected Income statement		Annual	Q1	Q2	Q3	Q4
Sales		$       4,400,000.00	$       1,050,000.00	$    1,100,000.00	$ 1,150,000.00	$ 1,100,000.00
COGS		$       2,640,000.00	$           630,000.00	$        660,000.00	$      690,000.00	$      660,000.00
Gross Margins		$       1,760,000.00	$           420,000.00	$        440,000.00	$      460,000.00	$      440,000.00
Selling and Admin oh		$          860,000.00	$           215,000.00	$        215,000.00	$      215,000.00	$      215,000.00
Depreciation		$             40,000.00	$             10,000.00	$          10,000.00	$        10,000.00	$        10,000.00
Net Income		$          860,000.00	$           195,000.00	$        215,000.00	$      235,000.00	$      215,000.00