eBook Helen Bowers, owner of Helen's Fashion Designs, is planning to request a line of credit from her bank. She has estimated the following sales forecasts for the firm for parts of 2018 and 2019: May 2018 $186,000 June 186,000 July 372,000 August 540,000 September 720,000 October 360,000 November 360,000 December 90,000 January 2019 180,000 Estimates regarding payments obtained from the credit department are as follows: collected within the month of sale, 10%; collected the month following the sale, 75%; collected the second month following the sale, 15%. Payments for labor and raw materials are made the month after these services were provided. Here are the estimated costs of labor plus raw materials: May 2018 $90,000 June 90,000 July 126,000 August 882,000 September 305,000 October 234,000 November 162,000 December 90,000 General and administrative salaries are approximately $27,000 a month. Lease payments under long-term leases are $9,000 a month. Depreciation charges are $36,000 a month. Miscellaneous expenses are $2,700 a month. Income tax payments of $64,000 are due in September and December. A progress payment of $180,000 on a new design studio must be paid in October. Cash on hand on July 1 will be $132,000, and a minimum cash balance of $90,000 should be maintained throughout the cash budget period. a. Prepare a monthly cash budget for the last 6 months of 2018. If no entry required, enter "0" or leave it blank. Negative values, if any, should be indicated by a minus sign. Round your answers to the nearest dollar, if necessary. a. Prepare a monthly cash budget for the last 6 months of 2018. If no entry required, enter "0" or leave it blank. Negative values, if any, should be indicated by a minus sign. Round your answers to the nearest dollar, if necessary. May June July August September October November December January $ $ $ $ $ $ 5 $ $ $ Collections and purchases worksheet Sales (gross) Collections During month of sale During 1st month after sale During 2nd month after sale Total collections $ $ $ 5 $ $ $ $ $ $ $ s $ S Purchases Labor and raw materials Payments for labor and raw materials $ $ $ $ $ S Cash gain or loss for month Collections $ $ $ $ Payments for labor and raw materials General and administrative salaries Lease payments Miscellaneous expenses Income tax payments Design studio payment Total payments Net cash gain (loss) during month $ $ $ $ $ S $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Loan requirement or cash surplus Cash at start of month Cumulative cash Target cash balance Cumulative surplus cash or loans outstanding to maintain $90,000 target cash $ $ $ $ $ balance $ $ $ b. Prepare monthly estimates of the required financing or excess funds - that is, the amount of money Bowers will need to borrow or will have available to invest. Round your answers to the nearest dollar. Enter loans outstanding with minus sign. Round your answers to the nearest dollar, if necessary. $ July August $ $ - September October $ $ November December $ c. Now suppose receipts from sales come in uniformly during the month (that cash receipts come in at the rate of 1/30 or 1/31 each day), but all outflows must be paid on the 5th Will this affect the cash budget? That is, will the cash budget you prepared be valid under these assumptions? If not, what could be done make a valid estimate of the peak financing requirements? to be possible to use a cash budget centered on the end of the month. To make a valid estimate of the In a situation, where inflows and outflows are not synchronized during the month, it -Select- peak financing requirements, the company -Select- d. Bowers' sales are seasonal; and her company produces on a seasonal basis, just ahead of sales. Without making any calculations, discuss how the company's current and debt ratios would vary during the year if all financial requirements were met with short-term bank loans. Could changes in these ratios affect the firm's ability to obtain bank credit? The months preceding peak sales would show -Select- collected from sales, the current ratio would -Select- current ratio and -Select debt-to-capital ratio due to additional short-term bank loans. In the following months as receipts are and the debt-to-capital ratio would -Select . Large changes in these ratios -Select affect the firm's ability to obtain bank credit. Check My Work (1 remaining) eBook Helen Bowers, owner of Helen's Fashion Designs, is planning to request a line of credit from her bank. She has estimated the following sales forecasts for the firm for parts of 2018 and 2019: May 2018 $186,000 June 186,000 July 372,000 August 540,000 September 720,000 October 360,000 November 360,000 December 90,000 January 2019 180,000 Estimates regarding payments obtained from the credit department are as follows: collected within the month of sale, 10%; collected the month following the sale, 75%; collected the second month following the sale, 15%. Payments for labor and raw materials are made the month after these services were provided. Here are the estimated costs of labor plus raw materials: May 2018 $90,000 June 90,000 July 126,000 August 882,000 September 305,000 October 234,000 November 162,000 December 90,000 General and administrative salaries are approximately $27,000 a month. Lease payments under long-term leases are $9,000 a month. Depreciation charges are $36,000 a month. Miscellaneous expenses are $2,700 a month. Income tax payments of $64,000 are due in September and December. A progress payment of $180,000 on a new design studio must be paid in October. Cash on hand on July 1 will be $132,000, and a minimum cash balance of $90,000 should be maintained throughout the cash budget period. a. Prepare a monthly cash budget for the last 6 months of 2018. If no entry required, enter "0" or leave it blank. Negative values, if any, should be indicated by a minus sign. Round your answers to the nearest dollar, if necessary. a. Prepare a monthly cash budget for the last 6 months of 2018. If no entry required, enter "0" or leave it blank. Negative values, if any, should be indicated by a minus sign. Round your answers to the nearest dollar, if necessary. May June July August September October November December January $ $ $ $ $ $ 5 $ $ $ Collections and purchases worksheet Sales (gross) Collections During month of sale During 1st month after sale During 2nd month after sale Total collections $ $ $ 5 $ $ $ $ $ $ $ s $ S Purchases Labor and raw materials Payments for labor and raw materials $ $ $ $ $ S Cash gain or loss for month Collections $ $ $ $ Payments for labor and raw materials General and administrative salaries Lease payments Miscellaneous expenses Income tax payments Design studio payment Total payments Net cash gain (loss) during month $ $ $ $ $ S $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Loan requirement or cash surplus Cash at start of month Cumulative cash Target cash balance Cumulative surplus cash or loans outstanding to maintain $90,000 target cash $ $ $ $ $ balance $ $ $ b. Prepare monthly estimates of the required financing or excess funds - that is, the amount of money Bowers will need to borrow or will have available to invest. Round your answers to the nearest dollar. Enter loans outstanding with minus sign. Round your answers to the nearest dollar, if necessary. $ July August $ $ - September October $ $ November December $ c. Now suppose receipts from sales come in uniformly during the month (that cash receipts come in at the rate of 1/30 or 1/31 each day), but all outflows must be paid on the 5th Will this affect the cash budget? That is, will the cash budget you prepared be valid under these assumptions? If not, what could be done make a valid estimate of the peak financing requirements? to be possible to use a cash budget centered on the end of the month. To make a valid estimate of the In a situation, where inflows and outflows are not synchronized during the month, it -Select- peak financing requirements, the company -Select- d. Bowers' sales are seasonal; and her company produces on a seasonal basis, just ahead of sales. Without making any calculations, discuss how the company's current and debt ratios would vary during the year if all financial requirements were met with short-term bank loans. Could changes in these ratios affect the firm's ability to obtain bank credit? The months preceding peak sales would show -Select- collected from sales, the current ratio would -Select- current ratio and -Select debt-to-capital ratio due to additional short-term bank loans. In the following months as receipts are and the debt-to-capital ratio would -Select . Large changes in these ratios -Select affect the firm's ability to obtain bank credit. Check My Work (1 remaining)