Continuation of P10-37B: revised sales (Learning Objective 4)

Refer to P10-37B. Before granting a loan to The Music Box, First Central Bank asks for a sensitivity analysis, assuming that June sales are only $65,000 rather than the $85,000 originally budgeted. (While cost of goods sold will change, assume that purchases, depreciation, and the other operating expenses will remain the same as in P10-37B.)

Requirements 1. Prepare a revised budgeted balance sheet for The Music Box, showing separate computations for cash, inventory, and owners’ equity balances.

2. Suppose The Music Box has a minimum desired cash balance of $35,000. Will the company borrow cash in June?

3. How would this sensitivity analysis affect First Central’s loan decision?