Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Honolua Company is preparing a cash budget for November. The company has $150,000 cash at the beginning of November and anticipates total sales of $1,000,000,

Honolua Company is preparing a cash budget for November.

  • The company has $150,000 cash at the beginning of November and anticipates total sales of $1,000,000, consisting of 25% cash sales and 75% bank credit-card sales.
  • The bank charges 3% for credit-card deposits.
  • The firm sets its selling price at 160% of the cost of purchases and pays the cost of each month's sales at the end of the month.
  • Operating expenses are $45,000 per month, of which $25,000 is depreciation expense.
  • Selling expenses (commissions) each month amount to 4% of total sales dollars.
  • In addition, a $400,000 note will be due in November for equipment purchased last May. In addition to the principal amount, interest for one month (at 12% per year) will be paid in November.
  • Honolua Company has line of credit (LOC) agreement with its bank to borrow up to $100,000 for operations. The LOC agreement requires Honolua Company to maintain a minimum cash balance of $100,000.

Required: Use the Excel worksheet provided with the exam to provide support for answering the following questions. Be sure to write your answers in the boxes below each question.

1. Prepare in good form a cash budget that shows the amount, if any, that the company must borrow during November. Separate your budget, at a minimum, into the following categories:

Beginning Cash Balance

Operating Cash Flows (Both Inflows and Outflows)

Cash Balance before Financing Effects

Financing Activity

Ending Cash Balance

2. What is Honolua Companys needed LOC borrowing in November under the above budget?

DATA:
Forecasted Sales $ 1,000,000
Cash Sales 25%
Bank Credit-Card Sales 75%
Bank Fee on Credit-Card Sales 3%
Sales Price Markup on Cost 160%
Operating Expenses (including Depreciation) $ 45,000
Depreciation $ 25,000
Sales Commission Rate (bases on Sales $) 4%
Note Due in November (principal) $ 400,000
Interest Rate (annual) 12%
Beginning Cash Balance $ 150,000
Minimum Cash Balance per LOC agreement $ 100,000

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Cost Determination A Conceptual Approach

Authors: Joel S. Demski

1st Edition

0813803608, 978-0813803609

More Books

Students also viewed these Accounting questions

Question

How many atmospheres are in 889 mmHg?

Answered: 1 week ago

Question

What are the different techniques used in decision making?

Answered: 1 week ago