Question
( Cash budget ) The Sharpe Corporation's projected sales for the first 8 months of 2016 are shown in the following table: January 200,000 February
(Cash
budget)
The Sharpe Corporation's projected sales for the first 8 months of 2016 are shown in the following table:
January 200,000
February 130,000
March 145,000
April 250,000 May 310,000
June 280,000
July 235,000
August 160,000
Of Sharpe's sales,
1010
percent is for cash, another
6060
percent is collected in the month following the sales, and
3030
percent is collected in the second month following sales. November and December sales for 2015 were
$230 comma 000230,000
and
$185 comma 000185,000,
respectively.Sharpe purchases its raw materials 2 months in advance of its sales. The purchases are equal to
5050
percent of the final sales price of Sharpe's products. The supplier is paid 1 month after it makes a delivery. For example, purchases for April sales are made in February, and payment is made in March.In addition, Sharpe pays
$ 9 comma 000$9,000
per month for rent and
$ 20 comma 000$20,000
each month for other expenditures. Tax prepayments of
$ 22 comma 000$22,000
are made each quarter, beginning in March. The company's cash balance on December 31, 2015, was
$23 comma 00023,000.
This is the minimum balance the firm wants to maintain. Any borrowing that is needed to maintain this minimum is paid off in the subsequent month if there is sufficient cash. Interest on short-term loans (12 percent) is paid monthly. Borrowing to meet estimated monthly cash needs takes place at the beginning of the month. Thus, if in the month of April the firm expects to have a need for an additional $60,500, these funds would be borrowed at the beginning of April with interest of $605
(0.12times1/12times$60,500)
owed for April and paid at the beginning of May.
a. Prepare a cash budget for Sharpe covering the first 7 months of 2016.
b. Sharpe has $200,000 in notes payable due in July that must be repaid or renegotiated for an extension. Will the firm have ample cash to repay the notes?
Fill in the Collections for the month of January:(Round to the nearest dollar.)
| Nov | Dec | Jan | Feb | Mar | Apr | May | June | July | |
| Sales | $230,000 | $185,000 | $200,000 | $130,000 | $145,000 | $250,000 | $310,000 | $280,000 | $235,000 |
| Collections: | |||||||||
| Month of sale (10%) |
| ||||||||
| First month(60%) |
| ||||||||
| Second month(30%) |
| ||||||||
| TotalCollections |
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Auditors Letter Handbook
Authors: American Bar Association Business Law Section
2nd Edition
161438973X, 978-1614389736
