Assume management has decided to go ahead with the Canmore Branch. Mountain Sports has aquired an open line of credit up to a maximum of $350,000. It will be necessary to convince the bank manager of this new Canmore branch ability to repay its line of credit including any interest. Management has provided the following list of assumptions to help in the preparation of the cash budget (note: you will need to use the projected income statement provided in Question 4 to complete the cash budget): 1. Beginning cash balance invested by owners $ 55,000 Quarter 1 Quarter 2 Quarter 3 Quarter 4 2. Sales by quarter (as % of total projected sales) 27% 24% 26% 23% 3. Type of collections from customers: 2 Cash Sales 42% 3 Credit Sales (accounts receivable) 58% 4. 5 Cash sales are collected in the quarter of the sale, all credit sales are collected in the quarter after the sale. 7 4. Merchandise purchases Merchandise purchases (cost of goods sold) are all paid in the quarter following purchase. (Quarter 1 purchases are 8 bought in Quarter 1 but paid for in quarter 2). 5. Operating expenses 1 All other operating expenses (all expenses except cost of goods sold) are paid on a monthly basis. 2 6. Required investment in equipment paid in cash in the first $ 135.000 3 quarter 7. Quarterly income tax payments paid in cash $ 7,000 8. Minimum cash balance $ 25,000 9. Borrowing and Repayments: Any borrowing will take place on the first day of the quarter and any repayments are paid at the end of the quarter. All borrowing and payments are made in increments of $1,000. Interest on borrowing can be ignored. 9. Borrowing and Repayments: Any borrowing will take place on the first day of the quarter and any repayments are paid at the end of the quarter. All borrowing and payments are made in increments of $1,000. Interest on borrowing can be ignored. Required: Prepare a cash budget for the first year of operation in Canmore by quarter and in total. Show clearly on your budget the quarter(s) in which borrowing will be needed and the quarter(s) in which repayments can be made, as requested by the company's bank. Mountain Sports Cash Budget For the year ended December 31 Quarter Year Summary 1 3 4 0 61 Note 1: Financing Calculations 62 Cash excess (Deficiency) 63 Minimum cash balance 64 Amount to borrow (repay) Borrowing (Repayments) Rounded to increment of 65 $1 000 Assume management has decided to go ahead with the Canmore Branch. Mountain Sports has aquired an open line of credit up to a maximum of $350,000. It will be necessary to convince the bank manager of this new Canmore branch ability to repay its line of credit including any interest. Management has provided the following list of assumptions to help in the preparation of the cash budget (note: you will need to use the projected income statement provided in Question 4 to complete the cash budget): 1. Beginning cash balance invested by owners $ 55,000 Quarter 1 Quarter 2 Quarter 3 Quarter 4 2. Sales by quarter (as % of total projected sales) 27% 24% 26% 23% 3. Type of collections from customers: 2 Cash Sales 42% 3 Credit Sales (accounts receivable) 58% 4. 5 Cash sales are collected in the quarter of the sale, all credit sales are collected in the quarter after the sale. 7 4. Merchandise purchases Merchandise purchases (cost of goods sold) are all paid in the quarter following purchase. (Quarter 1 purchases are 8 bought in Quarter 1 but paid for in quarter 2). 5. Operating expenses 1 All other operating expenses (all expenses except cost of goods sold) are paid on a monthly basis. 2 6. Required investment in equipment paid in cash in the first $ 135.000 3 quarter 7. Quarterly income tax payments paid in cash $ 7,000 8. Minimum cash balance $ 25,000 9. Borrowing and Repayments: Any borrowing will take place on the first day of the quarter and any repayments are paid at the end of the quarter. All borrowing and payments are made in increments of $1,000. Interest on borrowing can be ignored. 9. Borrowing and Repayments: Any borrowing will take place on the first day of the quarter and any repayments are paid at the end of the quarter. All borrowing and payments are made in increments of $1,000. Interest on borrowing can be ignored. Required: Prepare a cash budget for the first year of operation in Canmore by quarter and in total. Show clearly on your budget the quarter(s) in which borrowing will be needed and the quarter(s) in which repayments can be made, as requested by the company's bank. Mountain Sports Cash Budget For the year ended December 31 Quarter Year Summary 1 3 4 0 61 Note 1: Financing Calculations 62 Cash excess (Deficiency) 63 Minimum cash balance 64 Amount to borrow (repay) Borrowing (Repayments) Rounded to increment of 65 $1 000
