Instructions Use the information below to complete the attached spreadsheet.
A complete budget worksheet for Hannah & Maggie Inc.
A budgeted Income Statement for the three-month period ending March 31, 2014.
A budgeted Balance Sheet for March 31, 2014.
Problem: Hannah & Maggie Inc.
Hannah & Maggie are independent recording artists who sell their music wholesale for a living. In December Hannah found a Neumann record cutting machine on sale for $25,000. The machine can be used to transfer digital music to vinyl records.
Hannah and Maggie think their new album would sound amazing (and sell well) as an LP, but they need a loan to purchase the machine. A local bank is agreeable, but requires both current (2013) and budgeted (3 months in 2014) financial statements.
Based on the following information from Hannah & Maggie, construct the banker's report using the excel spreadsheet provided (seriously, use the spreadsheet!).
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Balance Sheet
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2014 Sales Forecast
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December 31, 2013
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Cash
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$19,200
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January
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29,600
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A/R
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22,000
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February
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34,400
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Inventory
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6,000
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March
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38,000
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Fixed Assets
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28,000
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April
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43,200
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Total Assets
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$75,200
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May
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31,200
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A/P
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$6,400
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Accrued Credit Fees
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330
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Common Stock
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16,000
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Retained Earnings
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52,470
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Total Liab& Equity
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$75,200
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Additional Information:
a. Everyone who buys H&M's music pays with a credit card. H&M collect 40% in the month of the sale and 60% in the month after the sale.
b. The credit card sales also mean that H&M incur a 1.5% sales fee. The sales fee is due one month after the sale.
c. The cost of sales is 35% of (current month) sales.
d. To make sure they don't run out of music to sell at shows, Hannah & Maggie plan to maintain inventory at the sales requirements for the next two months' budgeted sales.
e. Hannah & Maggie use a credit card for all their purchases; the duo pays off their balance in full the following month.
f. Hannah & Maggie pay their manager 3% of sales each month.
g. In addition to the variable management cost, the duo incurs fixed expenses of $5,000 per month, $500 of which is for depreciation of fixed assets.
Comments: The biggest complexity is that the desired ending inventory is for two full months (not 10% or 50% or next month). The structure has been developed for you to calculate the cost of the desired ending inventory for the two months. Do not worry if the same dollar amount is used the following month. Each month should be treated as a stand-alone, not affected by the other months.