Sound Effects Audio Systems Sells and Installs Car Stereo Systems

Essay

Sound Effects Audio Systems sells and installs car stereo systems.Managers need to prepare an inventory purchases budget for the first quarter of Year 2.The company's sales budget for the first quarter is provided below:
$$\begin{array} { l c c c } &\text { January } & \text { February } & \text { March } \\\text { Budgeted Sales } & \$ 200,000 & \$ 196,00 \mathrm { C } & \$ 180,000\end{array}$$ Based on past experience,the company expects the cost of goods sold to equal 80% of sales.Furthermore,the ending inventory balance each month should be $8,000 plus 20% of the current period's cost of goods sold.The inventory balance on December 31,Year 1 was $34,000.The company makes all purchases on account and pays 60% of accounts payable in the month of purchase and the remaining 40% in the next month.Accounts payable stood at $36,000 at December 31,Year 1.
Required:
1)Prepare an inventory purchases budget for January,February,and March of Year 2.
2)Determine the amount of ending inventory and the accounts payable balance that will appear on the March 31,Year 2 pro forma balance sheet.
3)Prepare a schedule of cash payments for inventory for January,February,and March,Year 2.