#7 Cash Budget

Johnson Corporation sells kitchen products to entities in the restaurant business. At the beginning of the current quarter, the company reports the following selected account balances.

Cash	$25,000
Accounts receivable	$120,000
Current payables	$140,000
Prepaid Assets	$50,000

Johnsons management has made the following budget estimates regarding operations for the upcoming quarter:

Sales	$700,000
Purchases of inventory	$500,000
Salaries	$130,000
Debt service payment	$75,000
Tax liability payment	$45,000
Depreciation expense	$60,000

Thirty Percent of Johnsons sales are made in cash. Seventy percent is on credit. For credit sales, 80% is collected in the current quarter and 20% is collected the following quarter. (Bad debts are negligible). Johnson pays for 75% of its inventory purchase during the quarter made and 25% in the following quarter. In addition, Johnson uses 50% of the beginning prepaid assets each quarter.

Johnsons minimum cash balance requirement is $25,000. Should the balance fall below this amount, management will attempt to negotiate a short-term loan with a local bank. The companys debt ratio (liabilities/assets) is currently at 80 percent.

Requirements:

1. Compute Johnsons budgeted cash receipts for the quarter. What is the expected amount of Accounts Receivable at the end of the quarter?
2. Compute the amount of prepaid assets that Johnson will use during the quarter.
3. Compute Johnsons budgeted cash disbursements for the quarter.
4. Compute the total amount of expense Johnson expects to report on its income statement during the quarter.
5. Prepare Johnsons cash budget for the quarter.
6. Estimate Johnsons short-term borrowing requirements for the quarter.
7. Assume you are the loan officer at Johnsons bank and you review Johnsons projections for the coming quarter. Would you be willing to approve a request from Johnson for a loan. Briefly explain your answer.