Accounting -The World Restaurant is situated in alocal shopping center

| January 30, 2017

The World Restaurant is situated in alocal shopping center and serves food of many different cultures. It also catersprivate functions for companies. The results of operations for the fourthquarter of 2014 are as follows:

Additional information:

Sales $500,000

Less cost of sales 345,000

Gross margin 155,000

Less selling general, and administrativeexpenses 60,000

Income before taxes 95,000

Less income taxes 38,000

Netincome $ 57,000

Additional Info:

1.Sales and cost of sales areexpected to increase by 13 percent in each of the next two quarters.

2. Eighty percent of sales are collectedin the quarter of sale and 20 percent are collected in the quarter followingsale.

3. The balance in accounts receivableat theendof2014relatestosalesinthefourthquar- ter of 2014.


5.Thebalanceinaccountspayableattheendof2014relatestopurchasesinthefourth quarterof 2014.

6. Food inventory at the end of 2014 is$17,000. For 2015, the company plans to hold ending inventory equal to 30percent of the subsequent quarter’s cost of sales.

7.Selling,general,andadministrativeexpensesareexpectedtoincreaseby$12,000duetoincreases in advertising and salaries. All other expenses in this category areexpected to remain constant.

8.Seventy-fivepercentofinventorypurchasesarepaidinthequarterofpurchaseand25percent are paid in the following quarter. All other expenses, including taxes,are paid in the quarter incurred.

9.Sellingandadministrativeexpenseincludes$5,000ofdepreciationrelatedtofixturesandequipment with a book value (net of accumulated depreciation) of $60,000 at theend of 2014.

10.Thetaxrateisexpectedtoremainat40percent. 11.Thecashbalanceattheendof2014is$40,000. 12.Commonstockattheendof2014is$25,000andretainedearningsis$105,256. 13.Assetaccountsarecash,accountsreceivable,inventory,andfurnitureandfixtures.The

only liability account is accountspayable. Owner’s equity accounts are common stock and retained earnings.


a. Prepare a budgeted income statementfor the first quarter of 2015. b. Prepare a cash budget for the first quarter of2015. c. Prepare a budgeted balance sheet as of the end of the first quarter of2015.

d.ThecompanyisdiscussingthepossibilityofexpandingitsrestauranttoincludeaThaisectionlate in the first quarter of 2015. The section’s construction would requirecash payments of $50,000. Assuming the company wants a minimum cash balance of$15,000 at the end of the first quarter, can a new section be added withoutobtaining additional funds?

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