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    Master Budget and Financial Statements

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    Unici Company is a retail company that specializes in selling outdoor camping equipment. The company is considering opening a new store on October 1, 2006. The company president formed a planning committee to prepare a master budget for the first three months of operation. He assigned you, the budget coordinator, the following tasks.


    a. October sales are estimated to be $120,000 of which 40 percent will be cash and 60 percent will be credit. The company expects sales to increase at the rate of 25 percent per month. Prepare a sales budget.

    b. The company expects to collect 100 percent of the accounts receivable generated by credit sales in the month following the sale. Prepare a schedule of cash receipts.

    c. The cost of goods sold is 60 percent of sales. The company desires to maintain a minimum ending inventory equal to 10 percent of the next month's cost of goods sold. Ending inventory at December
    31 is expected to be $12,000. Assume that all purchases are made on account. Prepare an inventory purchases budget.

    d. The company pays 70 percent of accounts payable in the month of purchase and the remaining 30 percent in the following month. Prepare a cash payments budget for inventory purchases.

    e. Budgeted selling and administrative expenses per month follow.

    Salary expense (fixed) $18,000
    Sales commissions 5 percent of Sales
    Supplies expense 2 percent of Sales
    Utilities (fixed) $1,400
    Depreciation on store equipment (fixed)* $4,000
    Rent (fixed) $4,800
    Miscellaneous (fixed) $1,200

    *The capital expenditures budget indicates that Unici will spend
    $164,000 on October 1 for store fixtures, which are expected to have a $20,000 salvage value and a three-year (36-month) useful life.

    Use this information to prepare a selling and administrative expenses budget.

    f. Utilities and sales commissions are paid the month after they are incurred; all other expenses are paid in the month in which they are incurred. Prepare a cash payments budget for selling and administrative expenses.

    g. Unici borrows funds, in increments of $1,000, and repays them on the last day of the month. The company also pays its vendors on the last day of the month. It pays interest of 1 percent per month
    in cash on the last day of the month. To be prudent, the company desires to maintain a $12,000 cash cushion. Prepare a cash budget.

    h. Prepare a pro forma income statement for the quarter.

    i. Prepare a pro forma balance sheet at the end of the quarter.

    j. Prepare a pro forma statement of cash flows for the quarter.

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    Solution Summary

    The solution explains how to prepare the components of a master budget and related pro forma financial statements in an Excel attachment.