Kwaku Appiah has been working for a textile manufacturing company for the past 25 years. At his present age of 50, he decided to go into the business of buying and selling as the future looks bleak for him. He provides you with the following information: 1. His savings over the 25 years was shares in a listed company at a cost of GHC5,000 whose present market value is GHC4,200. This has to be realized for the purpose of his intended business. 2. Kwaku was promised sales orders amounting to GHC54,000 and GHC90,000 respectively for the first two quarters of 2019. From July onwards, sales are expected to be steady at the rate of GHC150,000 per quarter. 3. He will maintain inventory of goods costing GHC40,000 which have to be delivered in December 2018 if the business is to start in January 2019. 4. The goods will be sold, on average, at a gross profit margin of 20%. 5. A delivery van will be purchased and paid for in January 2019 for GH12,000. It is expected to last for 5 years and be worth about GHC4,000 at the end of that period. 6. Kwaku will arrange for monthly supplies of goods sufficient to replace items sold. The supplier will allow two months credit for all supplies, including the initial stocks to be delivered in December 2018. He will offer similar credit period to his customers. 7. He will conduct most of his business from home but will rent a warehouse to store the goods. He will pay 2 years rent of GHC5,400 payable half yearly in equal amounts for the two years commencing January 2019. 8. One Sales Executive will be employed on an annual salary of GHC3,600 payable monthly. 9. Telephone bill which is at present GHC150 per quarter which he will continue to pay privately will rise to GHC400 per quarter as a result of running the business from home. Other incidental expenses are estimated at GHC250 per quarter payable in cash. 10. Kwaku will require his bank to meet all his other cash needs if the business is undertaken. Required: Prepare (a) a cash budget for each of the four quarters of 2019. (b) a budgeted income statement for the year 2019. (c) a budgeted statement of financial position as at the year-end 2019

Kwaku Appiah has been working for a textile manufacturing company for the past 25 years. At his present age of 50, he decided to go into the business of buying and selling as the future looks bleak for him. He provides you with the following information: 1. His savings over the 25 years was shares in a listed company at a cost of GHC5,000 whose present market value is GHC4,200. This has to be realized for the purpose of his intended business. 2. Kwaku was promised sales orders amounting to GHC54,000 and GHC90,000 respectively for the first two quarters of 2019. From July onwards, sales are expected to be steady at the rate of GHC150,000 per quarter. 3. He will maintain inventory of goods costing GHC40,000 which have to be delivered in December 2018 if the business is to start in January 2019. 4. The goods will be sold, on average, at a gross profit margin of 20%. 5. A delivery van will be purchased and paid for in January 2019 for GH12,000. It is expected to last for 5 years and be worth about GHC4,000 at the end of that period. 6. Kwaku will arrange for monthly supplies of goods sufficient to replace items sold. The supplier will allow two months credit for all supplies, including the initial stocks to be delivered in December 2018. He will offer similar credit period to his customers. 7. He will conduct most of his business from home but will rent a warehouse to store the goods. He will pay 2 years rent of GHC5,400 payable half yearly in equal amounts for the two years commencing January 2019. 8. One Sales Executive will be employed on an annual salary of GHC3,600 payable monthly. 9. Telephone bill which is at present GHC150 per quarter which he will continue to pay privately will rise to GHC400 per quarter as a result of running the business from home. Other incidental expenses are estimated at GHC250 per quarter payable in cash. 10. Kwaku will require his bank to meet all his other cash needs if the business is undertaken. Required: Prepare (a) a cash budget for each of the four quarters of 2019. (b) a budgeted income statement for the year 2019. (c) a budgeted statement of financial position as at the year-end 2019

Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)

7th Edition

ISBN:9780357033609

Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Chapter14: Planning For Retirement

Section: Chapter Questions

Problem 2FPE

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