4. Capstone, Inc. (Chapter 9)
Capstone, Inc. is preparing its budget for the coming year, 2020. The first step is to plan for the first quarter of that coming year. Capstone, Inc. gathered the following information from the managers.
Sales
Unit sales for November 2019 113,000
Unit sales for December 2019 103,000
Expected unit sales for January 2020 115,000
Expected unit sales for February 2020 114,500
Expected unit sales for March 2020 118,000
Expected unit sales for April 2020 130,000
Expected unit sales for May 2020 140,000
Unit selling price $12.50
Capstone, Inc. likes to keep 10% of the next month’s unit sales in ending inventory. All sales are on account. 85% of the Accounts Receivable are collected in the month of sale, and 15% of the Accounts Receivable are collected in the month after sale. Accounts receivable on December 31, 2019, totaled $175,000.
Direct Materials
Item Amount Used per Unit Inventory, Dec. 31
Metal 1 lb @ 58¢ per lb. 5,177.5 lbs
Plastic 12 oz @ 6¢ per oz 3,883.125 lbs
Rubber 12 oz @ 5¢ per oz 1,294.375 lbs
2.5 lbs per unit total 10,355.0 lbs
Metal, plastic, and rubber together are 75¢ per pound per unit. (Hint: Do not prepare a separate materials purchases budget for each item of direct materials. Prepare a combined budget using the lbs per unit total applied to the budgeted production).
Capstone, Inc. likes to keep 5% of the materials needed for the next month in its ending inventory. Payment for materials is made within 15 days. 50% is paid in the month of purchase, and 50% is paid in the month after purchase. Accounts Payable on December 31, 2019, totaled $135,000. Raw Materials on December 31, 2019, totaled 10,355 pounds.
Direct Labor
Labor requires 15 minutes per unit for completion and is paid at a rate of $8 per hour.
Manufacturing Overhead
Indirect materials 35¢ per labor hour
Indirect labor 55¢ per labor hour
Utilities 40¢ per labor hour
Maintenance 20¢ per labor hour
Salaries $42,000 per month
Depreciation $16,800 per month
Property taxes $ 2,675 per month
Insurance $ 1,200 per month
Janitorial $ 1,300 per month
Selling and Administrative
Variable selling and administrative cost per unit is $1.60.
Advertising $15,500 a month
Insurance $ 1,250 a month
Salaries $75,000 a month
Depreciation $ 3,000 a month
Other fixed costs $ 3,500 a month
Other Information
The Cash balance on December 31, 2019, totaled $115,000, but management has decided it would like to maintain a cash balance of at least $800,000 beginning on January 31, 2020. Dividends are paid each month at the rate of $1.75 per share for 6,000 shares outstanding. The company has an open line of credit with Romney’s Bank. The terms of the agreement requires the borrowing to be in $1,000 increments at 8% interest. Capstone, Inc. borrows on the first day of the month and repays on the last day of the month. A $525,000 equipment purchase is planned for February.
Instructions
For the first quarter of 2020, do the following.
In: Accounting
P4-20: Integrative: Pro forma statements Red Queen Restaurants wishes to prepare financial plans. Use the financial statements and the other information provided below to prepare the financial plans.
The following financial data are also available:
|
Assets |
Liabilities and stockholders’ equity |
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|
Red Queen Restaurants Income Statement for the Year Ended December 31, 2019 |
||||
|
Sales revenue |
$800,000 |
|||
|
Less: Cost of goods sold |
600,000 |
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|
Gross profits |
$200,000 |
|||
|
Less: Operating expenses |
100,000 |
|||
|
Net profits before taxes |
$100,000 |
|||
|
Less: Taxes (rate = 21%) |
21,000 |
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|
Net profits after taxes |
$ 79,000 |
|||
|
Less: Cash dividends |
20,000 |
|||
|
To retained earnings |
$ 59,000 |
|||
|
Red Queen Restaurants Balance Sheet December 31, 2019 |
||||
|
Cash |
$ 32,000 |
Accounts payable |
$100,000 |
|
|
Marketable securities |
18,000 |
Taxes payable |
20,000 |
|
|
Accounts receivable |
150,000 |
Other current liabilities |
5,000 |
|
|
Inventories |
100,000 |
Total current liabilities |
$125,000 |
|
|
Total current assets |
$300,000 |
Long-term debt |
200,000 |
|
|
Net fixed assets |
350,000 |
Total liabilities |
$325,000 |
|
|
Total assets |
$650,000 |
Common stock |
150,000 |
|
|
Retained earnings |
175,000 |
|||
|
Total liabilities and stockholders’ equity |
$650,000 |
|||
Please show your work. It does not help me if you just provide the answers.
In: Finance
Integrative: Pro forma statements Red Queen Restaurants wishes to prepare financial plans. Use the financial statements and the other information provided below to prepare the financial plans.
The following financial data are also available:
The firm has estimated that its sales for 2020 will be $900,000.
The firm expects to pay $35,000 in cash dividends in 2020.
The firm wishes to maintain a minimum cash balance of $30,000.
Accounts receivable represent approximately 18% of annual sales.
The firm’s ending inventory will change directly with changes in sales in 2020.
A new machine costing $42,000 will be purchased in 2020. Total depreciation for 2020 will be $17,000.
Accounts payable will change directly in response to changes in sales in 2020.
Taxes payable will equal one-fourth of the tax liability on the pro forma income statement.
Marketable securities, other current liabilities, long-term debt, and common stock will remain unchanged.
Prepare a pro forma income statement for the year ended December 31, 2020, using the percent-of-sales method.
Prepare a pro forma balance sheet dated December 31, 2020, using the judgmental approach.
Analyze these statements, and discuss the resulting external financing required.
Red Queen Restaurants Income Statement for the Year Ended December 31, 2019
Sales revenue $800,000 Less: Cost of goods sold 600,000 Gross profits $200,000 Less: Operating expenses 100,000 Net profits before taxes $100,000 Less: Taxes (rate = 21%) 21,000 Net profits after taxes $ 79,000 Less: Cash dividends 20,000 To retained earnings $ 59,000Red Queen Restaurants Balance Sheet December 31, 2019
Assets Liabilities and stockholders’ equity Cash $ 32,000 Accounts payable $100,000 Marketable securities 18,000 Taxes payable 20,000 Accounts receivable 150,000 Other current liabilities 5,000 Inventories 100,000 Total current liabilities $125,000 Total current assets $300,000 Long-term debt 200,000 Net fixed assets 350,000 Total liabilities $325,000 Total assets $650,000 Common stock 150,000 Retained earnings 175,000 Total liabilities and stockholders’ equity $650,000LG 5
In: Accounting
Assuming that Mccphae Corporation has done each of the following in preparation for its fiscal year-end December 31, 2020 statements, and no adjustments or corrections were made except as noted, what would be the effect of each on: (a) total assets on December 31, 2020? (b) total liabilities on December 31, 2020? (c) owners’ equity on December 31, 2020? (d) cash on December 31, 2020? Circle U/S for understate, O/S for overstate, or NE for no effect. Treat each item independently and ignore income tax effects. 1. No entry for accrued interest on a note payable was made. The $60,000 note was issued on March 1, 2020 and accrues 8% interest annually. The interest will be paid on March 1, 2021. (a) total assets U/S O/S NE (b) total liabilities U/S O/S NE (c) owners’ equity U/S O/S NE (d) cash U/S O/S NE 2. Insurance of $6,000 was prepaid on November 1, 2020 for the six months beginning November 1 and recorded as “Prepaid Insurance.” On December 31, 2020, the following adjustment was made: Insurance Expense $2,000 Cash $2,000 (a) total assets U/S O/S NE (b) total liabilities U/S O/S NE (c) owners’ equity U/S O/S NE (d) cash U/S O/S NE 3. Employee wages of $100,000 were earned in December, but will be paid in January of 2021. No entry was recorded. (a) total assets U/S O/S NE (b) total liabilities U/S O/S NE (c) owners’ equity U/S O/S NE (d) cash U/S O/S NE 4. Depreciation of factory equipment for $200,000 was not recorded. (a) total assets U/S O/S NE (b) total liabilities U/S O/S NE (c) owners’ equity U/S O/S NE (d) cash U/S O/S NE
In: Accounting
Integrative: Pro forma statements Red Queen Restaurants wishes to prepare financial plans. Use the financial statements and the other information provided below to prepare the financial plans.
The following financial data are also available:
The firm has estimated that its sales for 2020 will be $900,000.
The firm expects to pay $35,000 in cash dividends in 2020.
The firm wishes to maintain a minimum cash balance of $30,000.
Accounts receivable represent approximately 18% of annual sales.
The firm’s ending inventory will change directly with changes in sales in 2020.
A new machine costing $42,000 will be purchased in 2020. Total depreciation for 2020 will be $17,000.
Accounts payable will change directly in response to changes in sales in 2020.
Taxes payable will equal one-fourth of the tax liability on the pro forma income statement.
Marketable securities, other current liabilities, long-term debt, and common stock will remain unchanged.
Prepare a pro forma income statement for the year ended December 31, 2020, using the percent-of-sales method.
Prepare a pro forma balance sheet dated December 31, 2020, using the judgmental approach.
Analyze these statements, and discuss the resulting external financing required.
Red Queen Restaurants Income Statement for the Year Ended December 31, 2019
Sales revenue $800,000 Less: Cost of goods sold 600,000 Gross profits $200,000 Less: Operating expenses 100,000 Net profits before taxes $100,000 Less: Taxes (rate = 21%) 21,000 Net profits after taxes $ 79,000 Less: Cash dividends 20,000 To retained earnings $ 59,000Red Queen Restaurants Balance Sheet December 31, 2019
Assets Liabilities and stockholders’ equity Cash $ 32,000 Accounts payable $100,000 Marketable securities 18,000 Taxes payable 20,000 Accounts receivable 150,000 Other current liabilities 5,000 Inventories 100,000 Total current liabilities $125,000 Total current assets $300,000 Long-term debt 200,000 Net fixed assets 350,000 Total liabilities $325,000 Total assets $650,000 Common stock 150,000 Retained earnings 175,000 Total liabilities and stockholders’ equity $650,000In: Accounting
Red Queen Restaurants wishes to prepare financial plans. Use the financial statements and the other information provided below to prepare the financial plans.
Red Queen Restaurants Income Statement for the Year Ended
December 31, 2019
Sales revenue $799,000
Less: Cost of goods sold 599,000
Gross profits $200,000
Less: Operating expenses 101,000
Net profits before taxes $99,000
Less: Taxes (21%) 20,790
Net profits after taxes $78,210
Less: Cash dividends 20,500
To retained earnings $57,710
Red Queen Restaurants Balance
Sheet December 31, 2019
Assets Liabilities and Stockholders' Equity
Cash $32,700 Accounts payable
$99,900
Marketable securities 17,800
Taxes payable 20,600
Accounts receivable 149,800
Other current liabilities
4,500
Inventories 100,400 Total current
liabilities $125,000
Total current assets $300,700
Long-term debt $199,700
Net fixed assets 349,500 Common stock
$150,500
Retained earnings $175,000
Total assets $650,200 Total liabilities and equity
$650,200
The following financial data are also available:
(1) The firm has estimated that its sales for 2020 will be $899,700.
(2) The firm expects to pay $34,400 in cash dividends in 2020.
(3) The firm wishes to maintain a minimum cash balance of $31,500.
(4) Accounts receivable represent approximately 21% of annual sales.
(5) The firm's ending inventory will change directly with changes in sales 2020.
(6) A new machine costing $43,100will be purchased in 2020.Total depreciation for 2020 will be $15,800.
(7) Accounts payable will change directly in response to changes in sales in 2020.
(8) Taxes payable will equal one-fourth of the tax liability on the pro forma income statement.
(9) Marketable securities, other current liabilities, long-term debt, and common stock will remain unchanged.
Questions:
a. Prepare a pro forma income statement for the year ended December 31, 2020, using the percent-of-sales method.
b. Prepare a pro forma balance sheet dated December 31, 2020, using the judgmental approach.
c. Analyze these statements, and discuss the resulting external financing required.
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