Jacob Long, the controller of Arvada Corporation, is trying to prepare a sales budget for the coming year. The income statements for the last four quarters follow:

First Quarter Second Quarter Third Quarter Fourth Quarter Total

Sales revenue $ 90,000 $ 100,000 $ 105,000 $ 130,000 $ 425,000

Cost of goods sold 54,000 60,000 63,000 78,000 255,000

Gross profit 36,000 40,000 42,000 52,000 170,000

Selling & administrative expenses 8,500 10,000 10,500 13,000 42,000

Net income $ 27,500 $ 30,000 $ 31,500 $ 39,000 $ 128,000

Historically, cost of goods sold is about 60 percent of sales revenue. Selling and administrative expenses are about 10 percent of sales revenue.

Fred Arvada, the chief executive officer, told Mr. Long that he expected sales next year to be 8 percent for each respective quarter above last yearâs level. However, Rita Banks, the vice president of sales, told Mr. Long that she believed sales growth would be only 5 percent.

Required

Prepare a pro forma income statement including quarterly budgets for the coming year using Mr. Arvadaâs estimate.

Prepare a pro forma income statement including quarterly budgets for the coming year using Ms. Banksâ estimate.

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Jacob Long, the controller of Arvada Corporation, is trying to prepare a sales budget for the coming year. The income statements for the last four quarters follow:

	First Quarter	Second Quarter	Third Quarter	FourthQuarter	Total
Sales Revenue	$ 90,000	$ 100,000	$ 105,000	$ 130,000	$425,000
Cost of goods sold	(54,000)	(60,000)	(63,000)	(78,000)	(255,000)
Gross profit	36,000	40,000	42,000	52,000	170,000
Selling & Administrating Expenses	(8,500)	10,000	(10,500)	(13,000)	(42,000)
Net income	$ 27,500	$ 30,000	$ 31,500	$ 39,000	$128,000

Historically, cost of goods sold is about 60 percent of sales revenue. Selling and administrative expenses are about 10 percent of sales revenue. Fred Arvada, the chief executive officer, told Mr. Long that he expected sales next year to be 8 percent for each respective quarter above last yearâs level. However, Rita Banks, the vice president of sales, told Mr. Long that she believed sales growth would be only 5 percent.

Required:

1) Prepare a pro forma income statement including quarterly budgets for the coming year using Mr. Arvadaâs estimate.

2) Prepare a pro forma income statement including quarterly budgets for the coming year using Ms. Banksâ estimate.

erinsheep438

Norman Jelen, the controller of Wing Corporation, is trying toprepare a sales budget for the coming year. The income statementsfor the last four quarters follow.

1st 2nd 3rd 4th total
Sales revenue $ 170,000 $ 200,000 $ 210,000 $ 260,000 $840,000
Cost of Goods sold 102,000 120,000 126,000 156,000 504,000
Gross Profit 68,000 80,000 84,000 104,000 336,000
Selling & Admin exp. 17,000 20,000 21,000 26,000 84,000
Net Income 51,000 60,000 63,000 78,000 252,000

Historically, cost of goods sold is about 60 percent of salesrevenue. Selling and administrative expenses are about 10 percentof sales revenue. Sam Wing, the chief executive officer, told Mr.Jelen that he expected sales next year to be 10 percent for eachrespective quarter above last year

orchidfish405

Bill Travis owns two Just 4 Kids stores in Florence, SouthCarolina. He believes that the stores have been successful and hewants to open a new store in Sumter about 30 miles west ofFlorence. Bill has been in the retail line for over 20 years, andhe worked at his uncleâs hobby shop while in high school andcollege before starting his own store at the age of 25.

Two big secrets to a successful toy store operation are goodlocation and product selection. Billâs first store is located indowntown Florence. Since Bill had been born and raised in Florence,he attracted a good customer base that remained loyal to his storeafter some of the giant chain related toy stores began to move intothe area. About 10 years ago, Bill saw the change in customershopping habits and purchased a second store near an interchange toInterstate 95 in a rapidly growing retail area. Lots of newfamilies had moved into the area, and Bill could not totally relyon the âgood old boyâ market alone to sustain his market share.This second store catered to the younger more mobile generationthat shopped at or near malls.

Bill now was looking into other markets. Sumter was not locatedon the interstate, but the area was growing because of itsproximity to the state capital of Columbia, which was just 30 milesto its west. Bill believed that the people of Sumter who commutedto work in Columbia would prefer to limit their driving forshopping activities to the immediate Sumter area. Also, since Billwas a respected citizen of Florence, his reputation as an honestbusinessman had spread to Sumter. He believed he could quicklybuild up a new customer base in that location. The big chain typestores also did not seem as interested in the Sumter area,preferring instead to locate in the larger metropolitan areas ofColumbia and Florence.

The appropriate toy items to feature in his stores were veryimportant. Bill felt that his area of influence was strictlyregional, and he did not have to carry much of the standardinventory of the national chain type of toy stores. His toy lineswere more a reflection of local interest; thus NASCAR related itemswere hot sellers. Billâs clientele also seemed interested incomputer action games and a new line of Yaâll talking dolls.

Bill went to the Florence National Bank to inquire about fundingfor the new store location. He had found an abandoned furniturestore in downtown Sumter along Main Street that was up for sale for$280,000. The store seemed to be the right size and at a goodlocation. A grocery store was in the same block with ample offstreet parking. Bill brought his balance sheet for the last twoyears and an income statement for the last operating year to thebank to support his request for a retail loan of $250,000. (Copiesof the financial statements are listed at the end of the case.)

Nick Tightwad, the local bank loan vice president had been afriend of Billâs for many years. He was a customer at Billâs toystore on close out sales, and his bank had underwritten the fundingfor the second store. Nick was excited about Billâs expansion goalsand the prospect of another business loan with his friend. At thesame time, Nick had to live up to his reputation. He was not aboutto approve a loan unless he was almost 100 percent sure that theborrower would not default. Billâs past success had alleviated muchof Nickâs concern, but he still wanted to complete a detailedanalysis of the financial performance of Just 4 Kids during thelast calendar year. Upon reviewing the balance sheet, Nick noticeda drop in cash during the last year even though Bill showed astrong profitable performance. The current financial statements didnot seem to give enough information to answer Nickâs questions andhe asked Bill to prepare a statement of cash flows for the yearending December 31, 20x7.

Just 4 Kids

Balance Sheet

December 31, 20x6

ASSETS
Cash		$ 38,500
Accounts Receivable		43,000
Inventory		126,000
Other Current Assets		17,500
Total Current Assets			$225,000
Land		$100,000
Furnishings, Fixtures & Vehicles	$150,000
Less Accumulated Depreciation	-30,000
Furnishings, Fixtures & Vehicles (net)		120,000
Building	400,000
Less Accumulated Depreciation	175,000
Building (net)		225,000
Total Long-Term Assets			445,000
Total Assets			$670,000

LIABILITIES
Accounts Payable		$ 57,500
Short-Term Notes Payable		20,000
Other Current Liabilities		13,000
Total Current Liabilities			$ 90,500
Long-Term Notes Payable			400,000
Total Liabilities			$490,500
EQUITIES
Capital		$100,000
Retained Earnings		79,500
Total Equities			$179,500
Total Liabilities and Equity			$670,000

Just 4 Kids

Income Statement

For the Year Ended December 31, 20x7

Sales Revenue		$600,000
Less Cost of Goods Sold		310,000
Gross Margin		290,000
Less Operating Expenses
Selling and Administrative	$106,200
Depreciation	20,000
Total Operating Expenses		126,200
Operating Income		163,800
Interest Expense	$50,000
Loss on Vehicle Sale	2,500
Total Other Expenses		52,500
Net Income Before Taxes		111,300
Less Income Taxes		39,300
Net Income		$72,000

Just 4 Kids

Balance Sheet

December 31, 20x7

ASSETS
Cash		$2,600
Accounts Receivable		71,000
Inventory		193,000
Other Current Assets		18,900
Total Current Assets			$285,500
Land		$100,000
Furnishings, Fixtures & Vehicles	$166,000
Less Accumulated Depreciation	-28,500
Furnishings, Fixtures & Vehicles (net)		137,500
Building	400,000
Less Accumulated Depreciation	190,000
Building (net)		210,000
Total Long-Term Assets			447,500
Total Assets			$733,000

LIABILITIES
Accounts Payable		$ 91,500
Short-Term Notes Payable		35,000
Other Current Liabilities		7,000
Total Current Liabilities			$133,500
Long-Term Notes Payable			388,000
Total Liabilities			$521,500
EQUITIES
Capital		$100,000
Retained Earnings		111,500
Total Equities			$211,500
Total Liabilities and Equity			$733,000