Question

Baird Company is a retail company that specializes in selling outdoor camping equipment. The company is considering opening a new store on October 1, 2019. The company president formed a planning committee to prepare a master budget for the first three months of operation. As budget coordinator, you have been assigned the following tasks:

Problem 14-23 Part 1

Required

October sales are estimated to be $300,000, of which 40 percent will be cash and 60 percent will be credit. The company expects sales to increase at the rate of 20 percent per month. Prepare a sales budget.

The company expects to collect 100 percent of the accounts receivable generated by credit sales in the month following the sale. Prepare a schedule of cash receipts.

The cost of goods sold is 70 percent of sales. The company desires to maintain a minimum ending inventory equal to 20 percent of the next month’s cost of goods sold. However, ending inventory of December is expected to be $12,100. Assume that all purchases are made on account. Prepare an inventory purchases budget.

The company pays 80 percent of accounts payable in the month of purchase and the remaining 20 percent in the following month. Prepare a cash payments budget for inventory purchases.

Budgeted selling and administrative expenses per month follow:

Salary expense (fixed)	$	18,100
Sales commissions		4	% of Sales
Supplies expense		2	% of Sales
Utilities (fixed)	$	1,500
Depreciation on store fixtures (fixed)*	$	4,100
Rent (fixed)	$	4,900
Miscellaneous (fixed)	$	1,300

*The capital expenditures budget indicates that Baird will spend $119,400 on October 1 for store fixtures, which are expected to have a $21,000 salvage value and a two-year (24-month) useful life.

Use this information to prepare a selling and administrative expenses budget.

Utilities and sales commissions are paid the month after they are incurred; all other expenses are paid in the month in which they are incurred. Prepare a cash payments budget for selling and administrative expenses.

Baird borrows funds, in increments of $1,000, and repays them on the last day of the month. Repayments may be made in any amount available. The company also pays its vendors on the last day of the month. It pays interest of 2 percent per month in cash on the last day of the month. To be prudent, the company desires to maintain a $13,000 cash cushion. Prepare a cash budget.

Prepare a pro forma income statement for the quarter. (all answers below are already correct for income statement)

Prepare a pro forma balance sheet at the end of the quarter. (blank boxes or not attempted need answers)

Prepare a pro forma statement of cash flows for the quarter. (blank boxes or not attempted need answers)

Required H

Required I

Required J

Prepare a pro forma income statement for the quarter.

BAIRD COMPANY( Pro Forma Income Statement For the Quarter Ended December 31, 2019 Sales revenueselected answer correct $1,092,000selected answer correct Cost of goods soldselected answer correct 764,400selected answer correct Gross marginselected answer correct 327,600 Selling and administrative expensesselected answer correct (155,220)selected answer correct Operating incomeselected answer correct 172,380 Interest expenseselected answer correct 9,816selected answer correct Net incomeselected answer correct $162,564

Prepare a pro forma balance sheet at the end of the quarter. (Amounts to be deducted should be indicated by a minus sign.)

BAIRD COMPANY Pro Forma Balance Sheet December 31, 2019 Assets Accounts receivableselected answer correct not attempted $259,200selected answer correct Inventoryselected answer correct not attempted 12,100selected answer correct Cashselected answer correct not attempted not attempted Store fixturesselected answer correct $119,400selected answer correct Less: Accumulated depreciationselected answer correct (12,300)selected answer correct not attempted 107,100 Total assets $378,400 Liabilities Accounts payableselected answer correct not attempted not attempted Sales commissions payableselected answer correct not attempted not attempted Utilities payableselected answer correct not attempted 1,500selected answer correct Line of credit liabilityselected answer correct not attempted not attempted not attempted not attempted not attempted Equity Retained earningsselected answer correct not attempted not attempted not attempted not attempted not attempted Total liabilities and equity $1,500

Complete this question by entering your answers in the tabs below.

Required H

Required I

Required J

Prepare a pro forma statement of cash flows for the quarter. (Amounts to be deducted should be indicated by a minus sign.)

BAIRD COMPANY Pro Forma Statement of Cash Flows For the Quarter Ended December 31, 2019 Cash flows from operating activities Cash receipts from customersselected answer correct not attempted Cash payments for inventoryselected answer correct not attempted Cash payments for selling and administrative expensesselected answer correct not attempted Cash payments for interest expenseselected answer correct not attempted Net cash flows from operating activities $0 Cash flows from investing activities Cash payment for store fixturesselected answer correct (119,400)selected answer correct Cash flow from financing activities Net inflow from line of creditselected answer correct not attempted Net increase in cashselected answer correct not attempted Plus: Beginning cash balanceselected answer correct not attempted not attempted $0

Answer 1

Sales budget
Particulars	October $	November $	December $	Total $
Sales	300000	360000	432000	1092000
Cash sales	120000	144000	172800	436800
Credit Sales	180000	216000	259200	655200
Realisation of credit sales		180000	216000	396000

Closing Inventory Budget
Particulars	October $	November $	December $	Total $
Cost of Goods Sold	210000	252000	302400	764400
Closing Inventory	50400	60480	12100	122980

Inventory Purchase Budget
Particulars	October $	November $	December $	Total $
Opening Stock		50400	60480	110880
(+) Purchases	260400	262080	254020	776500
(-) Closing Stock	50400	60480	12100	122980
Cost of Goods Sold	210000	252000	302400	764400

Cash payment budgets for inventory purchases
Particulars	October $	November $	December $	Total $
Purchases	260400	262080	254020	776500
Payment in current month	208320	209664	203216	621200
Payment in next month		52080	52416	104496
Total	468720	523824	509652	1502196

Selling and administrative expenses budget
Particulars	October $	November $	December $	Total $
Salary expense	18100	18100	18100	54300
Sales commissions	12000	14400	17280	43680
Supplies expense	6000	7200	8640	21840
Utilities	1500	1500	1500	4500
Depreciation on store fixtures	4100	4100	4100	12300
Rent	4900	4900	4900	14700
Miscellaneous expenses	1300	1300	1300	3900
Total	47900	51500	55820	155220

Cash Budget

Particulars	October $	November $	December $	Total $
Opening cash balance	0	13,000	13000	0
Realisation from debtors	120000	324000	388800	832800
(-) Payment for inventory purchase	-208320	-261744	-255632	-725696
(-) Payment for admin exp	-30300	-45000	-48840	-124140
(-) Payment for furniture	-119400			-119400
Cash balance	-238020	30,256	97328
Interest paid	-5,123	-4875	-3254	-13252
Amount borrowed	257000			257000
Amount paid	-857	-12381	-81074	-94312
Closing cash balance	13,000	13000	13000	13000

Proforma Income Statement for quarter ended 31st December, 2019

Particulars	October $	November $	December $	Total $
Sales	300000	360000	432000	1092000
Cost of Goods Sold	210000	252000	302400	764400
Gross margin	90000	108000	129600	327600
Selling and Admin exp	47900	51500	55820	155220
Operating Income	42100	56500	73780	172380
Interest paid	5123	4875	3254	13252
Net income	36977	51625	70526	159128

Proforma Balance Sheet as on 31st December, 2019

Particulars	Amount $	Amount $
Assets
Accounts receivable		259200
Inventory		12100
Cash		13000
Store fixtures	119400
(-) depreciation	12300	107100
Total assets		391400
Liabilities
Accounts payable		50804
Sales commission payable		17280
Utilities payable		1500
Line of credit liability		162688
Equity
Retained Earnings		159128
Total liabilities and equity		391400