Natalie Rae, owner of the Rae Caf, has requested your assistance in preparing a 3 year cash

Natalie Rae, owner of the Rae Café, has requested your assistance in preparing a 3 year cash budget. She provides the following financial data:

20X1 20X2 20X3 Budgeted pretax income $(20,000) $-0- $150,000 Depreciation expense 30,000 30,000 30,000 Mortgage payments:

Interest expense 20,000 19,500 19,000 Principal reduction 10,000 10,500 11,000 Expected changes in current accounts:

Accounts receivable 5,000 5,000 (5,000) Inventory 2,000 (3,000) 2,000 Accounts payable 5,000 (6,000) 7,000 Other planned activity:

Sale of capital stock 100,000 -0- -0- Purchase of property 20,000 50,000 -0-

Additional Information:

1. Cash at the beginning of 20X1 was $40,000.

2. The average tax rate of the Rae Café is 30%.

3. Assume operating losses can be carried forward for up to 3 years and offset against operating profits prior to calculating income taxes.

4. Assume dividends are paid out during profitable years. The amount of dividends paid is equal to 40% of net income.

Required:

Prepare a cash budget for the years 20X1-20X3 for the Rae Café using the adjusted net income approach.