Assignment

Purses are budgeted to sell for an average price of $250. Unit sales are expected to be as follows:

March       3,900 purses

April         4,200 purses

May          4,700 purses

June         4,300 purses

July          4,100 purses

Sales are made for cash and on credit. The following collection pattern is used to estimate monthly cash collections:

Cash sales                               40%

Credit sales - month of sale       32

Credit sales - month after sale   24

Uncollectible                             4     

Total                                       100%

*Uncollectible bad debt expense can be handled in a variety of ways (as a reduction of sales, as part of selling and administrative expenses, etc.), for purposes of this budget project please record bad debt expense as part of selling and administrative expenses.

The company maintains an inventory of 20 percent of the following month's sales. The company expects to have 840 purses on hand on March 31. Coaches pays an average of $200 per purse.

The company pays for 75 percent of its purchases in the month of purchase and the remaining 25 percent in the month after purchase.

The following monthly selling and administrative expenses are planned for the quarter, though salaries will have a one-time $10,000 increase in May and advertising will decrease by $10,000 in June.

Depreciation        $ 8,000

Rent                   38,000

Advertising          30,000

Salaries               80,000

On June 30, the company plans to purchase $20,000 of new office equipment. However, no additional depreciation will be recorded in the second quarter.

Coaches wants to maintain a minimum cash balance of $30,000. An open line of credit at a local bank allows the company to borrow up to $100,000 per quarter in $1,000 increments.

All borrowing is done at the beginning of the month, and all repayments are made at the end of a month in $1,000 increments. Accrued interest is paid only when principal is repaid. The interest rate is 12 percent per year.

Accrued expenses from the first quarter will be paid in April.

Coaches' income tax rate is 20 percent and is accrued each month.

The March 31 balance sheet is budgeted as follows:

                                                               March 31

Cash                                                        $ 30,000

Accounts receivable                                   234,000

Inventory                                                 168,000

Plant & Equipment                                     450,000

Accumulated depreciation                           (180,000)

Total assets                                              $702,000

Accounts payable                                       $ 198,000

Accrued expenses (Income Taxes Payable)    54,000

Common stock                                           325,000

Retained earnings                                       125,000

Total liabilities and equities                           $702,000

Required

a. Prepare all components (cash disbursements for purchases budget, selling and administrative budget, and cash budget) of Coaches' master budget for the second quarter (1 April - 30 June); include calculations for each of the three months and for the quarter.

b. Prepare a pro-forma income statement for the second quarter.

c. Prepare a pro-forma balance sheet as of June 30.