Prepare cash budget, then revise (Learning Objectives 3, 4)

Battery Power, a family-owned battery store, began October with $10,500 cash. Management forecasts that collections from credit customers will be $11,000 in October and $15,000 in November. The store is scheduled to receive $6,000 cash on a business note receivable in October. Projected cash payments include inventory purchases ($13,000 in October and $13,900 in November) and operating expenses ($3,000 each month).

Battery Power’s bank requires a $10,000 minimum balance in the store’s checking account. At the end of any month when the account balance dips below $10,000, the bank automatically extends credit to the store in multiples of $1,000. Battery Power borrows as little as possible and pays back loans in quarterly installments of $2,000 plus 4% interest on the entire unpaid principal. The first payment occurs three months after the loan.

Requirements 1. Prepare Battery Power’s cash budget for October and November.
2. How much cash will Battery Power borrow in November if collections from customers that month total $12,000 instead of $15,000?