Cash Budget, Pro Forma Balance Sheet
Bernard Creighton is the controller for Creighton Hardware Store. In putting together the cash budget for the fourth quarter of the year, he has assembled the following data:
a. Sales
\begin{tabular}{lr}
July (actual) & \( \$ 100,000 \) \\
August (actual) & 120,000 \\
September (estimated) & 90,000 \\
October (estimated) & 100,000 \\
November (estimated) & 135,000 \\
December (estimated) & 150,000
\end{tabular}
b. Each month, 20 percent of sales are for cash, and 80 percent are on credit. The collection pattern for credit sales is 20 percent in the month of sale, 50 percent in the following month, and 30 percent in the second month following the sale.
c. Each month, the ending inventory exactly equals 40 percent of the cost of next month's sales. The markup on goods is 33.33 percent of cost.
d. Inventory purchases are paid for in the month following purchase.
e. Recurring monthly expenses are as follows:
\begin{tabular}{lr}
Salaries and wages & \( \$ 10,000 \) \\
Depreciation on plant and equipment & 4,000 \\
Utilities & 1,000 \\
Other & 1,700
\end{tabular}
f. Property taxes of \( \$ 15,000 \) are due and payable on September 15.
g. Advertising fees of \( \$ 6,000 \) must be paid on October 20.
h. A lease on a new storage facility is scheduled to begin on November 2. Monthly payments are \( \$ 5,000 \).
i. The company has a policy to maintain a minimum cash balance of \( \$ 10,000 \). If necessary, it will borrow to meet its short-term needs. All borrowing is done at the beginning of the month. All payments on principal and interest are made at the end of the month. The annual interest rate is 9 percent. The company must borrow in multiples of \( \$ 1,000 \).
