Demonstration Problem 14-1 Solution
j. k. Cash Budget, Pro Forma Cash Flow Data
Cash Budget
Desired Ending Cash Balance
12,000
Interest on Line of Credit
1% per
month
Pro Forma
Jan
Feb
Mar
Stmt. Data
CASH RECEIPTS
Beginning Cash Balance
0
12,300
12,750
Add Cash Receipts
100,000
410,000
451,000
961,000 (a)
Total Cash Available
100,000
422,300
463,750
CASH PAYMENTS
For Inventory Purchases
214,200
281,220
288,590
784,010 (b)
For S&A Expenses
36,500
58,700
61,580
156,780 (c)
For Interest Expense*
0
2,630
1,960
4,590 (d)
To Purchase Equipment
100,000
0
0
100,000 (e)
Total Budgeted Payments
350,700
342,550
352,130
FINANCING ACTIVITIES
Surplus (Shortage)
(250,700)
79,750
111,620
Borrowing (Repayment)
263,000
(67,000)
(99,000)
97,000 (f)
Ending Cash Balance
12,300
12,750
12,620
12,620 (g)
*Feb. ($263,000) x .01; Mar. [($263,000 – $67,000) x .01].
(a) Cash receipts from customers—operating activities on first quarter pro forma
statement of cash flows (sum of monthly amounts).
(b) Cash payments for inventory—operating activities on first quarter pro forma
statement of cash flows (sum of monthly amounts).
(c) Cash payments for S&A expenses—operating activities on first quarter pro forma
statement of cash flows (sum of monthly amounts).
(d) Cash payments for interest expense—operating activities, first quarter pro forma
statement of cash flows and the income statement (sum of monthly amounts).
(e) Investing activities on first quarter pro forma statement of cash flows. The
investment in center equipment also appears on the March 31 pro forma balance
sheet.
(f) Financing activities, first quarter pro forma statement of cash flows and the March
31 pro forma balance sheet (sum of monthly amounts).
(g) Cash balance on the March 31 pro forma balance sheet and the last item in the
first quarter pro forma statement of cash flows.
For the Quarter Ended March 31, 2014
Data Source
Sales Revenue
$1,324,000
Sales Budget
Cost of Goods Sold
(794,400)
Purchases Budget
Gross Margin
529,600
Selling and Admin. Exp.
(184,630)
S&A Exp. Budget
Operating Income
344,970
Interest Expense
(4,590)
Cash Budget
Net Income
$ 340,380
m.
Chang Distributors
Pro Forma Balance Sheet
March 31, 2014
Assets
Data Source
Cash
$ 12,620
Cash Budget
Accounts Receivable
363,000
Sales Budget
Inventory
78,500
Purch. Budget
Equipment
$100,000
S&A Exp. Budget
Accum. Depr. Equip.
(2,250)
S&A Exp. Budget
97,750
Total Assets
$551,870
Liabilities
Accounts Payable
$ 88,890
Purch. Budget
Sales Comm. Payable
24,200
S&A Exp. Budget
Utilities Payable
1,400
S&A Exp. Budget
Line of Credit Liability
97,000
Cash Budget
Total Liabilities
211,490
Equity
Retained Earnings
340,380
Total Liabilities and Equity
$551,870
Demonstration Problem 14-1 Solution
n.
Chang Distributors
Pro Forma Statement of Cash Flows
For the Quarter Ended March 31, 2014
Cash Flow From Operating Activities
Cash Receipts from Customers
$ 961,000
Cash Payments for Inventory
(784,010)
Cash Payments for S&A Expenses
(156,780)
Cash Payments for Interest Expense
(4,590)
Net Cash Flow from Operating Activities
$ 15,620
Cash Flow From Investing Activities
Cash Payments to Purchase Equipment
(100,000)
Cash Flow From Financing Activities
Inflow from Borrowing on Line of Credit
97,000
Net Change in Cash
12,620
Plus Beginning Cash Balance
0
Ending Cash Balance
$ 12,620
Demonstration Problem 14-1 Work Papers
a. b. c. Sales Budget, Schedule of Cash Receipts, Pro Forma Data
Estimated Sales Growth Rate
10% per month
Sales Budget
Pro Forma
PROJECTED SALES
Jan
Feb
Mar
Stmt. Data
Cash Sales
100,000
Sales on Account
300,000
(a)
Total Budgeted Sales
400,000
(b)
SCHEDULE OF CASH RECEIPTS
Current Month’s Cash Sales
100,000
+ 100% of Previous Month’s A/R
0
Total Budgeted Cash Collections
100,000
(a) Accounts receivable balance on March 31 pro forma balance sheet.
(b) Sales revenue on first quarter pro forma income statement (sum of monthly sales).
d. e. f. Inventory Purchases Budget, Schedule of Cash Payments for
Inventory, Pro Forma Data
Cost of Goods Sold Percentage
60% of Sales
Inventory Purchases Budget
Pro Forma
Jan
Feb
Mar
Stmt. Data
PROJECTED PURCHASES
Budgeted Cost of Goods Sold
240,000
(a)
Plus Desired Ending Inventory
66,000
(b)
Total Inventory Needed
306,000
Less Beginning Inventory
0
Required Inventory Purchases
306,000
(c)
SCHEDULE OF CASH PAYMENTS FOR INVENTORY PURCHASES
70% of Current Purchases
214,200
30% of Prior Month’s
Purchases
0
Total Budgeted Inventory
Payments
214,200
(a) Cost of goods sold on first quarter pro forma income statement (sum of monthly
amounts).
(b) Inventory balance on March 31 pro forma balance sheet.
(c) Accounts payable balance on March 31 pro forma balance sheet ($296,400 * .3).
Demonstration Problem 14-1 Work Papers
g. h. i. S&A Expense Budget, Schedule of Cash Payments for S&A
Expenses, Pro Forma Data
Sales Commissions Percent
5% of Sales
Supplies Expense Percent
2% of Sales
Equipment Cost
100,000
Equipment Salvage Value
10,000
Equip. Useful Life in Months
120
Selling and Administrative (S&A) Expense Budget
Jan
Feb
Mar
Pro Forma
PROJECTED S&A EXPENSES
Stmt. Data
Salary Expense
24,000
Sales Commissions 5% Sales
20,000
(a)
Supplies Expense 2% Sales
8,000
Utilities
1,400
(b)
Depreciation on Equipment
750
(c)
Rent
3,600
Miscellaneous
900
S&A Expenses before Interest
58,650
(d)
(Interest expense is computed in the cash budget; see requirement j)
SCHEDULE OF CASH PAYMENTS FOR S&A EXPENSES
Salary Expense
24,000
100% Prior Month’s Sales
Commissions
0
Supplies Expense
8,000
100% Prior Month’s Utilities
0
Rent
3,600
Miscellaneous
900
Total Payments for S&A
Expenses
36,500
(a) Sales commissions payable balance on March 31 pro forma balance sheet.
(b) Utilities payable balance on March 31 pro forma balance sheet.
(c) Accumulated depreciation balance on March 31 pro forma balance sheet (sum of
monthly amounts).
(d) S&A expense on first quarter pro forma income statement (sum of monthly amounts).
Demonstration Problem 14-1 Work Papers
j. k. Cash Budget, Pro Forma Cash Flow Data
Cash Budget
Desired Ending Cash Balance
12,000
Interest on Line of Credit
1%/month
Pro Forma
Jan
Feb
Mar
Stmt. Data
CASH RECEIPTS
Beginning Cash Balance
0
Add Cash Receipts
100,000
(a)
Total Cash Available
100,000
CASH PAYMENTS
For Inventory Purchases
214,200
(b)
For S&A Expenses
36,500
(c)
For Interest Expense*
0
(d)
To Purchase Equipment
100,000
100,000 (e)
Total Budgeted Payments
350,700
FINANCING ACTIVITIES
Surplus (Shortage)
(250,700)
Borrowing (Repayment)
263,000
(f)
Ending Cash Balance
12,300
(g)
*Feb. ($263,000) x .01; Mar. [($263,000 – $67,000) x .01].
(a) Cash receipts from customers—operating activities on first quarter pro forma
statement of cash flows (sum of monthly amounts).
(b) Cash payments for inventory—operating activities on first quarter pro forma
statement of cash flows (sum of monthly amounts).
(c) Cash payments for S&A expenses—operating activities on first quarter pro forma
statement of cash flows (sum of monthly amounts).
(d) Cash payments for interest expense—operating activities, first quarter pro forma
statement of cash flows and the income statement (sum of monthly amounts).
(e) Investing activities on first quarter pro forma statement of cash flows. The
investment in center equipment also appears on the March 31 pro forma balance
sheet.
(f) Financing activities, first quarter pro forma statement of cash flows and the March
31 pro forma balance sheet (sum of monthly amounts).
(g) Cash balance on the March 31 pro forma balance sheet and the last item in the
first quarter pro forma statement of cash flows.
Demonstration Problem 14-1 Work Papers l.
Chang Distributors
Pro Forma Income Statement
For the Quarter Ended March 31, 2014
Data Source
Sales Revenue
$
Sales Budget
Cost of Goods Sold
Purchases Budget
Gross Margin
529,600
Selling and Admin. Exp.
S&A Exp. Budget
Operating Income
Interest Expense
Cash Budget
Net Income
$ 340,380
m.
Chang Distributors
Pro Forma Balance Sheet
March 31, 2014
Assets
Data Source
Cash
$
Cash Budget
Accounts Receivable
Sales Budget
Inventory
Purch. Budget
Equipment
$
S&A Exp. Budget
Accum. Depr. Equip.
S&A Exp. Budget
Total Assets
$551,870
Liabilities
Accounts Payable
$
Purch. Budget
Sales Comm. Payable
S&A Exp. Budget
Utilities Payable
S&A Exp. Budget
Line of Credit Liability
Cash Budget
Total Liabilities
Equity
Retained Earnings
Total Liabilities and Equity
$
Demonstration Problem 14-1 Work Papers
n.
Chang Distributors
Pro Forma Statement of Cash Flows
For the Quarter Ended March 31, 2014
Cash Flow From Operating Activities
Cash Receipts from Customers
$
Cash Payments for Inventory
Cash Payments for S&A Expenses
Cash Payments for Interest Expense
Net Cash Flow from Operating Activities
$15,620
Cash Flow From Investing Activities
Cash Payments to Purchase Equipment
Cash Flow From Financing Activities
Inflow from Borrowing on Line of Credit
Net Change in Cash
Plus Beginning Cash Balance
Ending Cash Balance
$12,620