Question

Styles Editing Voice ABC CORP BALANCE SHEET These Fixed Operating costs included al utilities, all insurance, all rent, all property taxes, and all labor charges Fixed Operating costs fother than depreciation expense) are paid for immediately, as they are incurred Fixed Operating costs were spread evenly throughout the year 2010. With regard to the size and timing of these costs, it is anticipated that the experience of 2010 will be repeated in 2011 Therefore, we anticipate cash payments associated with Fored Operating costs to equal $100 per month in 2011. Because of losses in recent years at ABC Corp and the loss carry forward provisions of the tax code there were no income taxes paid in 2010, and it is anticipated in 2011 that no income tax payments will be made December 31, 2010 Cash $ 100 Marketable Securities D Accounts Receivables 2,000 Interest paid in 2010 was $40 and dividends paid in that same year were $60 Interest payments are made monthly and dividends are paid at the end of every quarter. The next dividend payment is scheduled for March 2011 The dividend payout ratio in 2010 is considered normal for ABC CORP. The annual interest rate for bank borrowing is sx percent per year (one-half of one per cent per month) Interest paid in the current month is based on the previous month's balance in Notes Payable Inventory 140 Fixed Assets ont 2.000 Total Assets The target cash balance for the end of any current month is equal to ten percent of next month's sales. Target ending inventory at the end of any current month is equal to twenty percent of estimated cost of goods sold for the next month. All purchases of inventory are paid for in the month following purchase The entire balance of Accounts Payable, at any given point in time, represents the purchase of inventory which has not yet been paid for One-half of all sales are collected in the month of sale, the remainder in the following Month the sales forecast for the first four months of 2011 Accounts Payable $ 2,380 Notes Payable 0 Retained earnings 2 January $1,000 Common Stock 1.400 February 800 March 3,200 Total of Both Liabilities & Equity April 2,000 Sales for October, November and December of the year 2010 were $2,000 $2,000 and $4.000 respectively For the year ended 12/31/10 ABC CORP generated Sales of $12,000 and Net Income of $120. The net profit margin this year is considered normal by ABC CORP Cost of Goods Sold was $8,400 in 2010. Cost of Goods Sold consistently averages seventy per cent of Sales, and will continue to do so in the future Depreciation Experwe was $500 in 2010, No Depreciation Expense was, or ever will be included in Cost of Goods Sold. Fixed Operating costs, excluding Depreciation Expense, were equal to $1,200 for 2010 Read Mode Focus

Answer 1

	Cash Budget
		Nov-10	Dec-10	Jan 11		Feb 11	oct-10
	Sales	2,000	4,000	1,000		800	2,000
	Cost of Goods Sold	1,400	2,800	700		560	1,400
	(70 % of Sales)
	Beginning Inventory	280	560	140			280
	Ending Inventory	560	140	112			280
	( 20 % of COGS of next month)
	Purchases	1,680	2,380	672			1,400
	(COGS+Cl.Stock-Op.stock)
	Cash Collections
	Collected in month of sale	1,000	2,000	500
	Collected month after sale	1,000	1,000	2,000
	Other Inflow	0.00	0.00	80.00
	Interest Income Payments	0.00	0.00	0.00
	Total INFLOWS	2,000	3,000	2,580
	Outlows
	Payment for purchases	1,400	1,680	2,380
	Interest Payments	3.33	1.14	0.00
	Overhead Payments	58.33	58.33	100
	(1200-500)/12 months
	Fixed Asset Additions	0.00	0.00	0.00
	Dividend Payments	0.00	60.00	0.00
	Income Tax Payments	0.00	0.00	0.00
	Total OUTFLOWS	1,462	1,799	2,480
	Inflow-Outflow	538	1,201	100
	Beginning Cash	0.00	100	100
	Desired (Ending Cash)	100	100	100
	Cash Produced Over + or under -Immediate need	538	1,201
	Loan required	0.00	0.00	80
	Loan repaid	438	228.00	0.00
	Loan Balance	0.00	0.00	80
	Securities Purchased	0.00	973	0.00
	Securities Sold	0.00	973	0.00
	Securities Balance	0.00	0.00	0.00