Owen Surf Sports is an idea of two budding entrepreneurs. Their plan is to sell kiteboards from a store…

Owen Surf Sports is an idea of two budding entrepreneurs. Their plan is to sell kiteboards from a store…

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Owen Surf Sports is an idea of two budding entrepreneurs. Their plan is to sell kiteboards from a store in the local town.
Between them, they invest $42,000 in capital and are in the process of applying for a bank loan, also for $42,000. The
loan would be repaid in four years. The owners will also pay the bank annual interest at a rate of 6 percent.
The owners are working on a business plan that the bank has requested. The store would sell only two models of kites
initially, the X-1 and the X-2. Data on the kites are given as follows:
X-1
X-2
320
$ 1,520
1,000
Expected annual sales (units)
Retail price (per unit)
Purchase cost (per unit)
Additional information on the planned operations for the year includes the following:
1. Equipment costing $54,000 will be purchased for cash when the store opens. The equipment will be depreciated over
five years using straight-line depreciation.
2. The owners expect sales to occur uniformly over the year. Sales will be both for cash (60 percent) and on account (40
percent). Sales on account are assumed to be collected in two months.
520
$ 920
820
3. The owners will maintain inventory equal to one-half of a month’s sales. All kites will be purchased from the
manufacturer on credit with payment made one month after purchase.
4. Annual cash selling, general, and administrative expenses are $51,000 fixed plus 10 percent of revenues.
5. The applicable income tax rate is 20 percent.
Required:
a. Prepare a budgeted income statement for the year based on the data and assumptions available.
b. Prepare the year-end (December 31) budgeted balance sheet based on the data and assumptions available.

Expert Answer:

Answer rating: 100% (QA)

a Budgeted Income Statement Sales X 1 520 units 920 478 400 X 2 320 units 1 520 486 400 Total Sales 478 400 486 400 964 800 Cost of Goods Sold X 1 520
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