1. Prepare ABudgeted StatementOf Cash flow?Analyze, Think, CommunicateATC 7-1 Business Applications Case Preparing and using pro forma statementsMary Helu and Jason Haynes rccently graduatcd from the same university. After graduation thcy decided not to scck jobs at cstablishcdorganizations but, rather, to start thcir own small busincss hoping they could have morc flexibility in their personal livcs for a few ycars.Mary's family has opcrated Mexican restaurants and taco trucks for the past two gencrations, and Mary noticcd thcre were no taco truckScrviccs in thc town where their university was located. To reduce the amount they would need for an initial investmcnt, they decided to starta busincss operating a taco cart rathcr than a taco truck, from which they would cook and scrve traditional Mexican-stylc strect food.They bought a used taco cart for $18,000. This cost, along with the cost for supplics to get startcd, a business license, and street vendorlicensc brought their initial cxpenditures to S22,000. They took $5,000 from personal savings they had accumulated by working, Page 344part time during college, and they borrowed $17,000 from Mary's parents. They agreed to pay intcrest on the outstanding loanbalance cach month based on an annual rate of 5 percent. They will repay the principal over the next few years as cash becomes available.They were ablc to rent spacc in a parking lot ncar the campus they had attended, believing that the students would welcome their food as analtcrnative to the typical fast food that was currently available.After two months in business, September and October, they had average monthly revenues of $25,000 and out-of-pocket costs of $22,000 forrent, ingredicnts, paper supplics, and so on, but not interest. Jason thinks they should repay some of the moncy they borrowed, but Marythinks they should prepare a sct of forecastcd financial statements for their first ycar in business before deciding whether or not to repay anyprincipal on the loan. She remembers a bit about budgeting from e survey of accounting course she took and thinks the results from theirfirst two months in business can be extended over the next 10 months to prepare the budget they need. They cstimate the cart will last at1cast four years, after which they expect to sell it for $6,000 and move on to something clsc in their lives. Mary agrees to preparc a forccasted(pro forma) income statement, balance sheet, and statement of cash flows for their first year in business, which includes the two monthsalrcady passed.

The cash flow budget is the measurement of all cash receipts and all monetary expenses that are…

Answered: Máry agrees to prepare a forecas nd…

Máry agrees to prepare a forecas nd statement of cash flows for their first year in business, which includes the two months

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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