P1-6 Accounting and Planning Decisions

Myrla Rhyman is planning to start a new buisness as a systems consultant. She has saved $7,000

to invest in the buisness. She expects to receive $3,800 each month, on average, from sales to

customers. She expects that she will need cash to pay the following items each month, on av-

erage: rent, $900; supplies, $500; utilities, $100; other, 4250. She will need to purchase $13,000

of equipment to start the buisness; in addition, she will need $3,000 to cover initial operating

costs. A local bank has agreed to consider a loan to help Myrla start her buisness and has asked

her to develop a plan that describes her expected cash receipts and payments for the first year.

The plan should show how much cash she will need for the buisness, how much she will need

to borrow, and how she expects to pay back the loan. Monthly payments will be required to

pay off the loan and interest. The bank will charge $10 per year in interest for each $100 bor-

rowed until the loan is repaid at the end of the year. Myrla has asked you to prepare a plan

for her to submit to the bank.

Required

Prepare a plan for Myrla. Describe any assumptions you make.