Question

MacBook Pro Financial Statement Case A group of BU graduates recently established a partnership called BU Associates- BUA. Each member has saved some money after working in the hotel industry. BUA has decided to build and operate a 20-unit highway budget motel. BUA invests $$0,000 of its own money in the company. They also obtain a long-term mortgage on the land and months of the new business, and principal payments are expected to be $500 per month. (estimated 30 year life), and furniture, fixture and equipment at $36,000 (estimated 10 written off (depreciated) over five years. BUA also prepaid advertising costs of S1,200 building for $200,000. Interest is estimated to be $1,500 per month for the first few Cash was paid for land at $20,000, building construction and completion at $180,000 year life). for brochures and other items. This cost will be written off during the first year of Linen also was purchased with cash for $9,000. This linen amount will be business. The first year's insurance premium of $2,400 was also prepaid before the business started For the first two months of business, occupancy is forecast to be 80% and 90% respectively, and, in order to build up volume, a competitive average room rate of $100 is to be offered. When calculating revenue, use a 30-day month for simplicity, and round monthly revenue figures to the nearest $1. All revenue will be on a cash basis. Since the motel is relatively small, BUA partners (2 members) will run it themselves, but expect to hire 3 front desk employees, 1 maintenance staff and 4 housekeeping maids. Average payroll per employee is expected to be of $2,000 per month. Partners of BUA will each be paid S3,000 a month by the company for their services. to pay them the balance. estimated to be 30% of monthly revenue. This will be paid in cash. Utility costs are However, for each of the first six months, they will each only take $2,000 cash out of the business for living expenses, until they are sure the company has sufficient cash resources Direct operating expenses have not been mentioned above (other than payroll) are forecast to be 5% of rooms revenue for each month, however, the month-one cost will not be paid until month two, and so on. Office expenses expected to be 2% of rooms revenue per month in cash. Dividends will be declared each month, 50% of net earnings (income) and will be paid out on the following month. For each of the first three months of the motel's operation, prepare a cash budget, an income statement, the balance sheet for the end of each month and cash flow statement of month 2 and 3 based upon the tax rate of 20%.

Answer 1

Solution:

	Income statement						Balance Sheet
		Month
	Particulars	1st	2nd	3rd			Assets	1st	2nd	3rd	Liabilities	1st	2nd	3rd
	Occupancy %	80%	80%	90%			Land	20000	20000	20000	Capital	50000	50000	50000
	USD Revenue per room/day	100	100	100			Buidling	179500	179000	178500	Retained earnings	2316	4632	8460
	Operates ( no of days/month)	30	30	30			Furniture	35700	35400	35100	Loan	199500	199000	198500
	No of units	20	20	20			Linen	8850	8700	8550	Partner salary payable	2000	4000	6000
							Cash	10882	15648	23738	Utility	2400	2400	2700
	Particulars	1st	2nd	3rd			Prepaid advertisement	1200	1200	1200	dividend payable	2316	2316	3828
	Revenue	48000	48000	54000			Prepaid insurance	2400	2400	2400
	Direct operating expense @ 30%	-14400	-14400	-16200
	Gross profit	33600	33600	37800
Less: Expenses								258532	262348	269488		258532	262348	269488
	Wages ( 8 employees)	-16000	-16000	-16000
	Partner salary	-6000	-6000	-6000
	Utility costs @ 5%	-2400	-2400	-2700
	Office expense @ 2%	-960	-960	-1080
	Interest expense	-1500	-1500	-1500
	Depreciation - building	-500	-500	-500
	Depreciation - furniture	-300	-300	-300
	Depreciation - linen	-150	-150	-150
	Profit before tax	5790	5790	9570
	Tax @ 20%	-1158	-1158	-1914
	PAT	4632	4632	7656
	Dividend	-2316	-2316	-3828
	T/f to retained earnings	2316	2316	3828
	Cash flow statement
	Particulars	Month
		1st	2nd	3rd
	Opening balance	0	10882	15648
Add/(Less):
	Receipt of capital	50000	0	0
	Loan taken	200000	0	0
	Interest expense	-1500	-1500	-1500
	Principal repayment	-500	-500	-500
	Land mortgage	-20000	0	0
	Building construction	-180000	0	0
	Furniture	-36000	0	0
	Linen	-9000	0	0
	Prepaid Advertising costs	-1200	0	0
	Insurance	-2400	0	0
	Revenue	48000	48000	54000
	Direct operating expense @ 30%	-14400	-14400	-16200
	Wages ( 8 employees)	-16000	-16000	-16000
	Partner salary	-4000	-4000	-4000
	Utiliity	0	-2400	-2400
	Office expense @ 2%	-960	-960	-1080
	Tax	-1158	-1158	-1914
	Dividend	0	-2316	-2316
		10882	15648	23738