James Buchanan Orthotics and Prosthetics is planning to request a line of credit from its bank.

The company has produced sales estimates, and these appear in the worksheet below. Collection

estimates are as follows: 10 percent within the month of sale, 75 percent in the month following

the sale, and 15 percent in the second month following the sale. Labor and supplies estimates also

appear in the worksheet below. Payments for labor and supplies are typically made during the

month following the one in which these costs have been incurred. General and administrative

salaries will amount to approximately $27,000 a month; lease payments under long-term lease

contracts will be $9,000 a month; depreciation charges will be $36,000 a month; miscellaneous

expenses will be $2,700 a month; income tax payments of $63,000 will be due in both September

and December; and a progress payment of $180,000 on a new building must be paid in October.

Cash on hand on July 1 will amount to $132,000, and a minimum cash balance of $90,000 will be

maintained throughout the cash budget period. What loan will be the company require in

October?

ANSWER

May June July August September October November December January

Collections worksheet:

Billed charges $180,000 $180,000 $360,000 $540,000 $720,000 $360,000 $360,000 $90,000 $180,000

Collections

Within 30 days

30-60 days

60-90 days

Total collections

Supplies worksheet:

Amount of labor and supplies $90,000 $90,000 $126,000 $882,000 $306,000 $234,000 $162,000 $90,000

Payments made for labor and supplies

Net cash gain (loss):

Total collections

Total purchases

General and administrative salaries

Lease payments

Miscellaneous expenses

Taxes

Progress payment

Total payments

Net cash gain/loss

Borrowing/surplus summary:

Cash at beginning with no borrowing

Cash at end with no borrowing

Target cash balance (given)

Cumulative surplus cash / loan balance

Must Show all work (specifically the net cash gain loss section)