Reference no: EM132838533

Green Friends Ltd is a garden design and landscaping business that started operations on 1 September 2020. The following information has been provided by the firm.

In September, cash sales were $5,000 and credit sales $45,000. Total expected sales in the following three months are: $70,000 in October; $78,000 in November; and $82,000 in December. The company expects 10% of the sales of each month to be cash sales and the remainder credit sales. Credit sales are expected to be collected 20% in the month of the sale, 50% in the next month, and 30% in the following month.

All purchases of inventory are on credit. Purchases of inventory in September were $18,000. The company estimates purchases in the following three months to be: $19,000 in October, $20,000 in November and $21,000 in December. Purchases are paid 80% in the month of purchase, and 20% in the following month.

1. Wages expense is estimated to be $15,000 in October, $18,000 in November and $19,000 in December, paid in cash.
2. Other operating expenses are budgeted to be $12,000 in October, $14,000 in November and $18,000 in December, paid in cash.
3. Depreciation expenses of $1,250 per month are expected.
4. The cost of sales is estimated as 25% of sales revenue each month.
5. In October, computers costing $8,000 will be purchased and paid in cash.
6. In December a cash dividend of $20,000 will be paid.
7. In November, it is expected to receive $400 cash from the sale of old equipment at its net book value.
8. The cash balance at 1st October 2020 was $7,500

Required:

Problem 1. Pre-pare a Budgeted Income Statement for the period October - December 2020.