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    Cash Budget/Percentage of sales method

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    II- Cash Flow and Financial Planning:

    A- Gerry Jacobs, a financial analyst for Best Value Supermarkets, has prepared the following sales and cash disbursement estimates for the period August through December of the current year.

    Month Sales Cash Disbursements
    August $400 $300
    September 500 500
    October 500 700
    November 600 400
    December 700 500

    90 percent of sales are for cash, the remaining 10 percent are collected one month later. All disbursements are on a cash basis. The firm wishes to maintain a minimum cash balance of $50. The beginning cash balance in September is $25. Prepare a cash budget for the months of October, November, and December, noting any needed financing or excess cash available. (40 ptos)

    B- Pro-forma Income Statement:

    Income Statement

    Huddleston Manufacturing Company
    For the Year Ended December 31, 2005

    Sales $2,800,000
    Less: Cost of goods sold 1,820,000
    Gross profits $ 980,000
    Less: Operating expenses 240,000
    Operating Profits $ 740,000
    Less: Interest expense 70,000
    Net profits before taxes $ 670,000
    Less: Taxes (40%) 268,000
    Net profits after taxes $ 402,000
    Less: Cash Dividends 132,000
    To: Retained earnings $ 270,000

    Huddleston Manufacturing estimates its sales in 2006 will be $3 million. Interest expense is expected to remain unchanged at $70,000, and the firm plans to pay cash dividends of $140,000 during 2006. Use the percent of sales method to prepare a pro forma income statement for the year ended December 31, 2006, based on the 2005 income statement shown above.

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    Solution Summary

    The solution explains how to prepare a cash budget and use the percentage of sales method to prepare a proforma income statement

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