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 2019 and 2020:

	May 2019	$186,000
	June	186,000
	July	372,000
	August	540,000
	September	720,000
	October	360,000
	November	360,000
	December	90,000
	January 2020	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 2019	$90,000
	June	90,000
	July	126,000
	August	881,000
	September	305,000
	October	234,000
	November	163,000
	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.

1. Prepare a monthly cash budget for the last 6 months of 2019. If no entry required, enter "0" or leave it blank. All payments and expenses should be entered as positive numbers. Cash losses, negative cash balance, negative cumulative cash, and cumulative loans outstanding, 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

   Collections and purchases worksheet

   Sales (gross)

   $

   $

   $

   $

   $

   $

   $

   $

   $

   Collections

   During month of sale

   During 1st month after sale

   During 2nd month after sale

   Total collections

   $

   $

   $

   $

   $

   $

   Purchases

   Labor and raw materials

   $

   $

   $

   $

   $

   $

   $

   $

   Payments for labor and raw materials

   $

   $

   $

   $

   $

   $

   $

   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

   $

   $

   $

   $

   $

   $

   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

   $

   $

   $

   $

   $

   $

2. 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	$

3. Now suppose receipts from sales come in uniformly during the month (that is, 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 to make a valid estimate of the peak financing requirements? In a situation, where inflows and outflows are not synchronized during the month, it is likely/not likely to be possible to use a cash budget centered on the end of the month. To make a valid estimate of the peak financing requirements, the company needs no additional actions/should establish its maximum cash requirements/should establish its minimum cash requirements/should establish its average cash requirements.
4. Bowers' sales are seasonal; and her company produces on a seasonal basis, just ahead of sales. Without making any calculations, discuss how the companys 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 firms ability to obtain bank credit? The months preceding peak sales would show a decreased/an increased current ratio and a decreased/an increased debt-to-capital ratio due to additional short-term bank loans. In the following months as receipts are collected from sales, the current ratio would decrease/increase and the debt-to-capital ratio would decrease/increase. Large changes in these ratios would/would not affect the firm's ability to obtain bank credit.