Telnet Corporation is a newly formed computer manufacturer. Telnet plans to begin operations on January 1, Year 2. Selected financial information is available for the preparation of Telnet"s six-month forecasted performance covering the period January 1 to June 30 of Year 2.
Forecasted monthly sales
$250,000
Monthly operating expenses
Labor
30,500
Rent for factory
10,000
Variable overhead
22,500
Depreciation on equipment
35,000
Amortization of patents
500
Selling and administrative expenses
47,500
Materials
125,000
Additional Information:
1. Collection period
45 days
2. Purchase terms
n/30
3. Ending finished goods inventory
$100,000
4. Ending raw material inventory
$ 35,000
5. Effective tax rate
50%
6. Beginning cash balance
$ 60,000
7. Minimum cash balance required
$ 40,000
8. Prepaid expenses on June 30, Year 2
$ 7,000
9. No inventory is in process on June 30, Year 2.
10. Sales are made evenly throughout the period.
11. Expenses are paid in cash (unless otherwise indicated).
12. Telnet Corporation"s balance sheet data on January 1, Year2, appears as:
Cash
Patents
Equipment
1,200,000
Shareholders" equity
1,300,000
Required:
a. Prepare a pro forma income statement to portray the forecasted financial position of Telnet Corporation for the six-month period ended June 30, Year 2.
b. Prepare a pro forma balance sheet as of June 30, Year 2.
c. Prepare a cash forecast analysis as in Exhibit 9A.4 for the six-month period ended June 30, Year 2.
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