Question

Ponpon produces cans of jelly. The company would like to purchase a canning machine. The machine costs $25,000 and the company needs a loan to make the purchase. Before agreeing to the loan, their bank requires Ponpon to provide both current (2020) and budgeted (3 months in 2021) financial statements.

Use the following information from Ponpon to provide the bankers with the 2021 budgeted financial states.

Balance Sheet

Cash                                        $50,000   

Accounts Receivable               $31,000   

Inventory                                $12,000

Fixed Assets                            $37,000

Total Assets                            $130,000

Accounts Payable                   $22,500

Accrued Credit Fees               $9,200

Common Stock                        $46,800

Retained Earnings                   $$51,500

Total Liabilities & Equity         $130,000

2021 Sales Forecast

January            $74,000

February          $82,000

March              $58,000

April                $54,000

May                 $80,000

June                 $67,000

July                  $70,500

Additional Info:

a. Ponpon only accepts credit cards when selling their jelly. Ponpon collects 35% of the sales on account in the month of the sale and 65% in the month after the sale.

b. Unfortunately, the credit card companies pass along a 6.2% sales fee to Ponpon for the convenience and safety of their transactions on account. The sales fee is due one month after the sale.

c. The cost of sales is 42% of (current month) sales.

d. Ponpon maintains an inventory at all times at the sales requirements (COS) for the months’ budgeted sales. This provides assurance that they won’t run out of jelly.

e. Ponpon uses a credit card for all their purchases. The company pays off their credit card balance in full the following month.

f. Ponpon pays 5% of sales each month to Jako Co. for the CEO’s security service.

g. In addition to the carriable security cost, Ponpon incurs fixed expenses of $22,000 per month, $1500 of which is for depreciation of fixed assets.

1. Prepare the budgeted Balance Sheet for March 31, 2021.

Balance Sheet                                                             

December 31, 2020 and March 31, 2021                                                                                            

                                                            12/31/20                     3/31/21                                               

Assets:                                                                                    

   Cash                                                  50,000                                                                        

   Accounts Receivable                        31,000                                                                        

   Inventory                                          12,000                                                                        

   Fixed Assets                                     37,000                                                                        

Total Assets                                        $130,000                                                                        

Liabilities & Equity:                                                                                         

  Accounts Payable                              22,500                                                                         

  Accrued Credit Fees                         9,200                                                                

  Common Stock                                  46,800                                                             

  Retained Earnings                             51,500                                                                         

Total Liabilities & Equity                     $130,000                                                                     

Answer 1

The balance sheet and calculations will be as follows

Assets:		31-Dec-20	31-Mar-21
Cash		50000	89248
Accounts Receivable		31000	37700
Inventory		12000	24360
Fixed Assets		37000	32500
Total Assets		130000	183808
Liabilities & Equity:
Accounts Payable		22500	47760
Accrued Credit Fees		9200	3596
Common Stock		46800	46800
Retained Earnings		51500	85652
Total Liabilities & Equity	130000	183808

Calculation of retained earning
		Remarks
Sales	214000	For Jan, Feb and March forcast only
Less: Cost of sales	89880	42% of the sales value
Gross profit	124120
Less: Credit card fees	13268	6.2% of sales
Less: Ceo's Security	10700	5% of sales
Less: Fixed cost (Cash)	61500	(22000-1500)*3
Less: Fixed cost (Non-Cash)	4500	(1500*3)
Net Profit	34152

Calculation of Accounts Receivable
Month	Total Sales	Collected in same month	Collected in Next month
Jan-21	74000	25900	48100
Feb-21	82000	28700	53300
Mar-21	58000	20300	37700
Total	214000
Note : 37700 will be collected in April 21 and hence it will be present in accounts receivable

Calculation of Cash	Amount
Opening Balance	50000
Add: Cash collection from Dec 20 Sales	31000
Less: Credit Card Fees	-9200
Less: Accounts Payable	-22500
Add: Cash collection from Sales of 3 Months	176300
Less: Cost of Sales	-77880
Less: Fixed expenses	-41000
Less: Ceo's security	-7800
Less: Credit Card Fees	-9672
Total	89248

Calculation of Cost of Sales
Closing Stock Required	24360
Sales for Months	89880
Less : Stock Present	-12000
Cost of Sales Required	102240

Cost of Sales Bifurcation		Remarks
Total Cost of sales	102240
Less : For last month which will be paid in next month	24360	(42% of last month sale)
Paid through cash	77880