Question

Nicole Mackisey is thinking of forming her own spa business, Nicole's Getaway Spa (NGS). Nicole expects that she and two family members will each contribute $6,500 to the business and receive 650 shares each.

Nicole forecasts the following amounts for the first year of operations, ending December 31, 2017: cash on hand and in the bank, $3,030; amounts due from customers from spa treatments, $1,230; building and equipment, $94,525; amounts owed to beauty supply outlets for spa equipment, $5,750; notes payable to a local bank, $69,035.

Cash dividends of $1,300 will be paid to the shareholders during the year. Nicole also forecasts that first-year sales revenues will be $72,500, wages will be $43,500, the cost of supplies used up will be $10,100, selling and administrative expenses will be $10,200, and income taxes will be $2,900.

3. Prepare a (forecasted) balance sheet for Nicole’s Getaway Spa at December 31, 2017.

Answer 1

Budgeted Income statement for

NGS As of 31st Dec, 2017

Sales Revenue = $72,500

(-)Wages = ($43,500)

(-)Cost of supplies =($10,100)

(-)S&A expenses =($10,200)

Operating Income = $8,700

(-)Tax = ($2,900)

Net Income = $5,800

Of this $5,800

$1,300 will be paid to shareholders as dividend during the year

so $5,800-$1,300 = $4,500 Will be transferred to retained earnings.

Budgeted Balance Sheet of

NGS As of 31st Dec, 2017

Assets:-

Current Assets:-

Cash on hand & in the bank $3,030

Account Receivables $1,230

Total Current Assets $4,260

Fixed Assets:-

Building & Equipment $94,525

Total Fixed Assets $94,525

Total Assets $98,785

Liabilities:-

Shareholders equity & Retained Earnings:-

Shareholders Equity:-

1,950 Shares @ 10 Each $19,500

  Retained Earnings $ 4,500

Total Equity & R.E $24,000

Other Liabilities:-

Creditors $ 5,750

Note payable $69,035

Total Other Liabilities $74,785

Total Liabilities &

Shareholders Equity $98,785