Cascade Corporation's president has asked you to prepare a master budget for the first
three months (April, May, and June) of Year 2004, based on the following information:
1. Prepare a Sales Budget. April sales are estimated to be $400,000, of which
$300,000 will be cash sales and $300,000 will be on credit. The company expects to grow
10% per month in sales.
2. Prepare a schedule of cash receipts. The company expects to collect 100% of
the accounts receivable generated by credit sales in the month following the sale.
3. Prepare an inventory purchases budget. The cost of goods sold is 60% of sales.
The company policy is to budget an ending inventory balance equal to 25% of the next
month's projected cost of goods sold. Assume the company expects July cost of goods
sold to be $314,000. Assume that all purchases are made on account.
4. Prepare a cash payments budget for inventory purchases. The company pays
70% of accounts payable in the month of purchase and the remaining 30% in the
following month.
5. Prepare a selling and administrative expenses budget. Use the following
information to prepare the budget:
Salary expense (fixed) $24,000
Sales commissions 5% of sales
Supplies expense 2% of sales
Utilities (fixed) $1,400
Depreciation on equipment (fixed) (a) $750
Rent (fixed) $3,600
Miscellaneous (fixed) $900
(a) The capital expenditures budget indicated that the company will spend $300,000 on
April 1 for equipment. The fixtures are expected to have a $30,000 salvage value and a
ten-year (120-month) useful life.
6. Prepare a cash payments budget for selling and administrative expenses. Utilities and sales commissions are paid in the
month after the month in which they are incurred; all other expenses are paid in the month they are incurred.
7. Prepare a cash budget. The company borrows and repays principal in increments of $1,000 on the last day of the month as
needed. It pays interest of 1% per month in cash on the last day of the month. Company policy is to maintain an ending cash
balance of at least $12,000.
8. Prepare a pro forma income statement for the quarter.
9. Prepare a pro forma balance sheet at the end of the quarter.
10. BONUS POINTS (10). Prepare a pro forma statement of cash flows for the quarter.
