Question
Northeast Auto Parts, a family-owned auto parts store, began January with $10,600 cash. Management forecasts that collections from credit customers will be $11,300 in January
Northeast Auto Parts, a family-owned auto parts store, began January with $10,600 cash. Management forecasts that collections from credit customers will be $11,300 in January and $14,700 in February.The store is scheduled to receive $6,500 cash on a business note receivable in January. Projected cash payments include inventory purchases ($14,400 in January and $12,200 in February) and selling and administrative expenses ($3,500 each month). Northeast Auto Parts's bank requires a $10,000 minimum balance in the store's checking account. At the end of any month when the account balance falls below $10,000, the bank automatically extends credit to the store in multiples of $1,000. Northeast Auto Parts borrows as little as possible and pays back loans in quarterly installments of $2,500, plus 33% APR interest on the entire unpaid principal. The first payment occurs three months after the loan.
1. Please
prepare Northeast Auto Parts's cash budget for January and February. |
Northern Auto Parts | ||
Cash Budget | ||
January and February |
|
| January | February |
Beginning cash balance | ? | ? | |
Cash receipts from customers | ? | ? | |
Cash receipt on note receivable | ? | ? | |
Cash available | ? | ? | |
Cash payments: | ? | ? | |
Purchases of inventory | ? | ? | |
Selling and administrative expenses | ? | ? | |
Total cash payments | ? | ? | |
Ending cash balance before financing | ? | ? | |
Less: | Minimum cash balance desired | ? | ? |
Projected cash excess (deficiency) | ? | ? | |
Total effects of financing | ? | ? | |
Ending cash balance | ? | ? |
2. How much cash will Northeast Auto Parts borrow in February if collections from customers that month total $13,700 instead of $14,700? |
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