ASSIGNMENT #$6$

Question $1(10$ marks$)$

Student Services Incorporated $($SSI$)$ acts as a wholesaler to the various student retail shops that

operate on campuses throughout Canada. It supplies clothing, records, and confectionary items.

The company has a $$150,000$ line of credit available with a local bank, and it draws on its account in

amounts of $$10,000$ at a time. SSI has not drawn on the credit line yet. As at December $31,2023,$

the firm had a cash balance of $$14,000,$ which is the minimum balance that it wants to maintain. Any

excess cash is used to repay the line of credit. $[$Ignore interest on the line of credit.$]$ The following

additional information is available.

Sales$/$Accounts Receivable: $80\%$ of sales are on credit and terms are net $30$ days $(1$ month$).$ From

past experience $60$ percent of the accounts are collected $1$ month after the sale, $30$ percent are

collected $2$ months after the sale, and $10$ percent are collected $3$ months after the sale. Bad debts

are negligible.

Cost of Goods Sold$/$Purchases: The goods are ordered, received, and paid for in the month prior

to sale. Purchases are equal to $80\%$ of next month's sales and the gross profit margin is $40\%.$

Administrative Expense: The administrative expense is $$8,000$ per month $($which includes $$2,000$

for depreciation expense$)$ plus a bonus of $5$ percent of sales realized during the last quarter of the

calendar year. This bonus is paid in February of each year.

Dividends: In March, $$12,000$ in dividends will be paid.

Taxes: The tax rate is $40$ percent. For the past year, $$4,000$ in taxes must be paid by January $15,$

and no other taxes are payable in the period January to April.

Salaries: Wages and salaries amount to $15$ percent of the monthly dollar sales or $$24,000,$

whichever is greater.

Capital Expenditures: The company will buy new fixed assets for $$40,000$ in January. These

assets have a five$-$year life with no residual value.

Prepare a schedule of cash receipts, a schedule of cash payments and a cash budget for the

period January to April $2024.$ YOU CAN USE EXCEL and PRINT YOUR WORKSHEET

$("$portrait$).$

Question $2(4$ marks$)$

A firm has found itself having cash flow problems. It pays its suppliers on terms of $\frac{2}{15}$ net $50.$ In the

past, it has always taken the cash discount. However, it finds itself in a situation where it cannot

come up with the cash needed to pay within $15$ days for purchases. In $50$ days, it will have the

necessary cash. If it chooses to borrow money to pay for purchases it would be forced to go to a

finance company specializing in high$-$risk loans. It would be forced to pay a rate of $24$ percent

compounded monthly on the loan. What should the firm do$?$