Freda’s Phones Inc. is a mobile phone retailer. The company is planning its cash needs for the month of January 2023. The statement of financial position showed the following at its fiscal year-end, December 31, 2022. Assets Current Cash $20,000 Accounts receivable 330,000 Inventory 120,000 470,000 PPE, net 4,000,000 $4,470,000 Liabilities Current Operating loan $100,000 Accounts payable 140,000 240,000 Non-current borrowings 3,000,000 3,240,000 Shareholders’ Equity Common shares 120,000 Retained earnings 1,110,000 1,230,000 $4,470,000 Other information: a. Cash collection i. November credit sales $0 ii. December credit sales $550,000 iii. % cash sales each month 20% iv. % credit sales collected in same month 40% v. % credit sales collect in next month 60% vi. % credit sales collected in second month 0% b. January total sales $500,000 c. Inventory information i. February total sales $450,000 ii. Gross profit ratio January 60% iii. Gross profit ratio February 60% iv. % purchases paid in cash same month 20% v. % inventory on hand needed for next month’s sales 60% d. Accounts payable at Dec. 31 all relate to inventory purchases and will be paid in full in January e. Variable expenses as % of total sales, paid each month 30% f. Fixed expenses i. Depreciation, including any January budgeted PPE purchases $40,000 ii. Other fixed operating expenses, paid each month $30,000 g. Interest rate per month 1% Interest is paid monthly on opening balances of the operating loan and non-current debt. h. Corporate income tax rate. 25% Income taxes are accrued at the end of the fiscal year. i. Monthly cash dividends paid to shareholders $5,000 j. Budgeted PPE purchases for January $15,000 k. January repayments of principal on non-current debt $25,000 l. Desired minimum cash balance at end of January $20,000 m. Maximum operating loan balance at end of January is $200,000 n. Any excess cash will be used to pay down the operating loan. o. Any cash not able to be provided by the operating loan will be raised by issuing common shares. Required: 1.Using a format like the budget worksheet on the following page, record the above information. 2. Prepare a statement of financial position at January 31, 2023 and budgeted income statement, statement of changes in equity, and statement of cash flows for the month ended January 31, 2023. Show all calculations. For SCF purposes, assume the operating loan is part of cash and cash equivalents. 3. Apprise management of budgeted January operating loan needs and the dollar amount of any shares that may need to be issued.

Freda’s Phones Inc. is a mobile phone retailer. The company is planning its cash needs for the month of January 2023. The statement of financial position showed the following at its fiscal year-end, December 31, 2022. Assets Current Cash $20,000 Accounts receivable 330,000 Inventory 120,000 470,000 PPE, net 4,000,000 $4,470,000 Liabilities Current Operating loan $100,000 Accounts payable 140,000 240,000 Non-current borrowings 3,000,000 3,240,000 Shareholders’ Equity Common shares 120,000 Retained earnings 1,110,000 1,230,000 $4,470,000 Other information: a. Cash collection i. November credit sales $0 ii. December credit sales $550,000 iii. % cash sales each month 20% iv. % credit sales collected in same month 40% v. % credit sales collect in next month 60% vi. % credit sales collected in second month 0% b. January total sales $500,000 c. Inventory information i. February total sales $450,000 ii. Gross profit ratio January 60% iii. Gross profit ratio February 60% iv. % purchases paid in cash same month 20% v. % inventory on hand needed for next month’s sales 60% d. Accounts payable at Dec. 31 all relate to inventory purchases and will be paid in full in January e. Variable expenses as % of total sales, paid each month 30% f. Fixed expenses i. Depreciation, including any January budgeted PPE purchases $40,000 ii. Other fixed operating expenses, paid each month $30,000 g. Interest rate per month 1% Interest is paid monthly on opening balances of the operating loan and non-current debt. h. Corporate income tax rate. 25% Income taxes are accrued at the end of the fiscal year. i. Monthly cash dividends paid to shareholders $5,000 j. Budgeted PPE purchases for January $15,000 k. January repayments of principal on non-current debt $25,000 l. Desired minimum cash balance at end of January $20,000 m. Maximum operating loan balance at end of January is $200,000 n. Any excess cash will be used to pay down the operating loan. o. Any cash not able to be provided by the operating loan will be raised by issuing common shares. Required: 1.Using a format like the budget worksheet on the following page, record the above information. 2. Prepare a statement of financial position at January 31, 2023 and budgeted income statement, statement of changes in equity, and statement of cash flows for the month ended January 31, 2023. Show all calculations. For SCF purposes, assume the operating loan is part of cash and cash equivalents. 3. Apprise management of budgeted January operating loan needs and the dollar amount of any shares that may need to be issued.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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