All sales are made on credit terms of net 30 days and are collected the following month and no bad debts are anticipated. The accounts receivable on the balance sheet at the end of September thus will be collected in October. The October sales will be collected in November, and so on. Inventory on hand represents a minimum operating level (or “safety” stock), which the company intends to maintain. Cost of goods sold average 80 percent of sales. Inventory is purchased in the month of sale and paid for in cash. Other cash expenses average 7 percent of sales. Depreciation is $10,000 per month. Assume taxes are paid monthly and the effective income tax rate is 40 percent for planning purposes.  The annual interest rate on outstanding long-term debt and bank loans (notes payable) is 12%. There are no capital expenditures planned during the period, and no dividends will be paid. The company’s desired end-of-month cash balance is $80,000. The president hopes to meet any cash shortages during the period by increasing the firm’s notes payable to the bank. The interest rate on new loans will be 12 percent.  Prepare monthly pro forma balance sheets at the end of October, November, and December, 2020

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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 All sales are made on credit terms of net 30 days and are collected the following month and no bad debts are anticipated. The accounts receivable on the balance sheet at the end of September thus will be collected in October. The October sales will be collected in November, and so on. Inventory on hand represents a minimum operating level (or “safety” stock), which the company intends to maintain. Cost of goods sold average 80 percent of sales. Inventory is purchased in the month of sale and paid for in cash. Other cash expenses average 7 percent of sales. Depreciation is $10,000 per month. Assume taxes are paid monthly and the effective income tax rate is 40 percent for planning purposes. 

The annual interest rate on outstanding long-term debt and bank loans (notes payable) is 12%. There are no capital expenditures planned during the period, and no dividends will be paid. The company’s desired end-of-month cash balance is $80,000. The president hopes to meet any cash shortages during the period by increasing the firm’s notes payable to the bank. The interest rate on new loans will be 12 percent. 

  1. Prepare monthly pro forma balance sheets at the end of October, November, and December, 2020. 
Month
Sales Forecast
Balance Sheet as of September, 30th 2020
Cash
Accounts Receivable
October
1,000.00
$
50,000.00
$ 700,000.00
$ 500,000.00
$ 750,000.00
$2,000,000.00
November
1,500.00
December
$ 3,000.00
Inventories
Net fixed assets
Total Assets
Accounts Payable
Notes Payable
$ 800,000.00
$ 400,000.00
$1,200,000.00
$ 800,000.00
$2,000,000.00
Long term Debt
Total Liabilities
Equity
Total
Transcribed Image Text:Month Sales Forecast Balance Sheet as of September, 30th 2020 Cash Accounts Receivable October 1,000.00 $ 50,000.00 $ 700,000.00 $ 500,000.00 $ 750,000.00 $2,000,000.00 November 1,500.00 December $ 3,000.00 Inventories Net fixed assets Total Assets Accounts Payable Notes Payable $ 800,000.00 $ 400,000.00 $1,200,000.00 $ 800,000.00 $2,000,000.00 Long term Debt Total Liabilities Equity Total
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