KELLY'S BOUTIQUE Chapter 6 Case Problem 1: Kelly's Boutique is contemplating several means of financing their acquisition of $200,000 in special equipment. One alternative is to borrow $200,000 from a local bank for 10 years at 12 percent per annum. The bank has asked them to expected in the first quarter, with each quarter thereafter increasing 2 percent. produce a 1-year cash budget broken down by quarters. Sales of $40,000 are Purchases are based on an expected cost of sales of 55 percent and a required ending inventory of 70 percent of next quarter's cost of sales. Beginning inven- tory was $11,000. Sales for the first quarter next year are expected to be $50,000. Sales in the previous year's fourth quarter were $28,000. Sales in the previous year's third quarter were $30,000. Expenses include advertising expense of $900, depreciation expense of $800, interest expense of $1,000, pay- third quarter. The beginning cash balance in the first quarter was $15,000. roll expense of $8,000, supplies expense of $500, and utilities expense of $600 per quarter throughout the year. All expenses except depreciation are paid in the quarter during which they are incurred. Collections in the quarter of sale are expected to be 80 percent, collections in the first quarter following a sale 15 percent, and in the second quarter 5 percent. Payments in the quarter of pur- chase are expected to be 85 percent, payments in the first quarter following a chases in the previous year's fourth quarter were $20,000. Purchases in the pre- purchase 10 percent, and payments in the second quarter to be 5 percent. Pur- the third quarter. Quarterly payments of $4,200 on the loan also begin in the vious year's third quarter were $17,000. Proceeds from the $200,000 loan are expected in the second quarter and $200,000 of equipment will be purchased in on dito ver left footer and ValueKELLY'S BOUTIQUE Chapter 6 Case Problem 1: Kelly's Boutique is contemplating several means of financing their acquisition of $200,000 in special equipment. One alternative is to borrow $200,000 from a local bank for 10 years at 12 percent per annum. The bank has asked them to expected in the first quarter, with each quarter thereafter increasing 2 percent. produce a 1-year cash budget broken down by quarters. Sales of $40,000 are Purchases are based on an expected cost of sales of 55 percent and a required ending inventory of 70 percent of next quarter's cost of sales. Beginning inven- tory was $11,000. Sales for the first quarter next year are expected to be $50,000. Sales in the previous year's fourth quarter were $28,000. Sales in the previous year's third quarter were $30,000. Expenses include advertising expense of $900, depreciation expense of $800, interest expense of $1,000, pay- third quarter. The beginning cash balance in the first quarter was $15,000. roll expense of $8,000, supplies expense of $500, and utilities expense of $600 per quarter throughout the year. All expenses except depreciation are paid in the quarter during which they are incurred. Collections in the quarter of sale are expected to be 80 percent, collections in the first quarter following a sale 15 percent, and in the second quarter 5 percent. Payments in the quarter of pur- chase are expected to be 85 percent, payments in the first quarter following a chases in the previous year's fourth quarter were $20,000. Purchases in the pre- purchase 10 percent, and payments in the second quarter to be 5 percent. Pur- the third quarter. Quarterly payments of $4,200 on the loan also begin in the vious year's third quarter were $17,000. Proceeds from the $200,000 loan are expected in the second quarter and $200,000 of equipment will be purchased in on dito ver left footer and Value