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 a budgeted Income Statement for the three-month period ending March 31, 2021 (Pro Forma Income Statement).

Pro Forma Income Statement:                                   

For the period: January 1 - March 31, 2021                           

                                                            January            February          March              Total                

Sales                                                                                       

Cost of goods sold                                                                                          

Gross Margin                                                                                      

Less Expenses:                                                                                    

   Variable Costs (mgmt fee)                                                                                       

   Credit Card Fees                                                                                          

   Fixed Expenses                                                                                             

Total Expenses                                                                                               

Net Income                                                                                         

Answer 1

Pro Forma Income Statement

For the period: January 1 - March 31, 2021

.	Jan	Feb	Mar	Total
Sales	74000	82000	58000	214000
Cost of goods sold	31080	34440	24360	89880
Gross Margin	42920	47560	33640	124120
Less Expenses:
Variable Costs (mgmt fee)	3700	4100	2900	10700
Credit Card Fees	3528	4762	4563	12853
Fixed Expenses	22000	22000	22000	66000
Total Expenses	29228	30862	29463	89553
Net Income	13692	16698	4177	34567

*The cost of sales is 42% of (current month) sales

* Variable Costs (mgmt fee) = Ponpon pays 5% of sales each month to Jako Co. for the CEO’s security service

* Ponpon incurs fixed expenses of $22,000 per month,

*Credit Card Fees = the credit card companies pass along a 6.2% sales fee to Ponpon for the convenience and safety of their transactions on account.

Ponpon collects 35% of the sales on account in the month of the sale and 65% in the month after the sale.

Credit card fee

.	Jan	Feb	Mar	Total
Sales	74000	82000	58000	214000
Collection from previous month sales	31000	48100	53300	132400
Collection from current month sales	25900	28700	20300	74900
Total collected each month	56900	76800	73600	207300
Credit Card Fees %	6.2%	6.2%	6.2%	6.2%
Credit Card Fees	3528	4762	4563	12853