Patricia Smith recently leased space in the Southside Mall and opened a new business, Smith's Coi Shop. Business has been good. but Smith frequently runs out of Cash. This has necessitated late payment on certain orders, which in turn is beginning to cause a problem with suppliers. Smith plans to borrow from the bank to have cash as needed. but first she needs a forecast of just how much she must borrow. Accordingly, she has asked you to prepare a cash budget for the critical period around Christmas, when needs will be especially high.

Sales are made on a cash basis only. Smith's purchases must be paid for during the month following the purchase. Smith pays herself a salary of $4,800 per month and the rent is $2,000 per month. In addition, she must make a tax payment of $12,000 in December. The current cash on hand (on December 1) is $400, but Smith has agreed to maintain an average bank balance of $6,000 this is her target cash balance. (Disregard till cash, which is insignificant because Smith keeps only a small amount on hand to lessen the chances of robbery.)

The estimated sales and purchases for December, January and February are shown here. Purchases during November amounted to $140,000

a. Prepare a cash budget for December, January, and February. b. Now suppose Smith started selling on a credit basis on December 1, giving customers 30 days to pay. All customers accept these terms and pay on time, and all other facts in the problem are unchanged. What would the company's loan requirements be at the end of December in this case? (Hint: The calculations required to answer this question are minimal.)