Problem -

Bass Blaster Products Ltd. is a retailer that sells sound systems. The company is planning its cash needs for the month of January, 2017. In the past, the company has had to borrow money during the post-Christmas season to offset a significant decline in sales. The following information has been assembled to assist in preparing a cash flow forecast for January.

a. January 2017 forecasted income statement:

Sales                                                                                      $200,000

Cost of goods sold                                                                   150,000

Gross profit                                                                             50,000

Variable selling expenses                                 $10,000

Fixed administrative expenses                          20,000               30,000

Net income                                                                              $ 20,000

b. Sales are 10% for cash and 90% on credit.

c. Credit sales are collected over a three-month period with 40% collected in the month of sale, 30% in the following month, and 20% in the second month following sale. 10% of credit sales are never collected. November 2016 sales totaled $300,000 and December sales totaled $500,000.

d. 40% of a month's inventory purchases are paid for in the same month. The remaining 60% are paid in the following month. Accounts payable relate solely to inventory purchases. At December 31, accounts payable totaled $400,000.

e. The company maintains its ending inventory levels at 60% of the cost of the merchandise to be sold in the following month. The merchandise inventory at December 31, 2016 was $90,000. February 2017 sales are budgeted at $150,000. Gross profit percentage is expected to remain unchanged.

f. The company pays $10,000 monthly cash dividends to shareholders.

g. cash balance at December 31, 2016 was $30,000; the company must maintain a cash balance of at least this amount at the end of each month.

h. The company can borrow on its operating loan in increments of $10,000 at the beginning of each month, up to a total loan balance of $500,000. The interest rate on this loan is 1% per month, payable on the first day of the next month. There is no operating loan at December 31, 2016.

Required: Prepare a cash flow forecast for Bass Blaster for the month of January 2017. Include appropriate supporting schedules.