Problem 6

The following information pertains to Happy Tee Co.:

Month Sales Purchases

July 40,000 20,000

August 30,000 15,000

September 20,000 10,000

October 50,000 25,000

November 60,000 30,000

December 70,000 35,000

Cash is collected form customers in the following manner:

Month of sale 20%

Month following the sale 50%

Two months following sale 28%

Amount uncollectible 2%

30% of purchases are paid for in cash in the month of purchase, and the balance is paid the following month. A 2% discount is allowed on cash paid out at the time of purchase.

Labor costs are 20% of sales. Other operating costs are 5,000 per month (including 2,000 of depreciation). Both of these are paid in the month incurred.

The cash balance on October 1 is 4,300. A minimum cash balance of 4,000 is required at the end of the month. Money can be borrowed in multiples of 1,000.

Finally, the firm will issue 6,000 of common stock and pay out 10,000 on dividends in October.

Show a projected cash flow statement in good form for the month of October.

Beginning cash balance =

Add: Cash collections =

Total cash available =

Less: Total Cash disbursements & minimum cash requirement =

Total Disbursements =

Add: Minimum cash balance required =

Total Cash needed =

Cash excess (deficit) =

Financing =

Borrowing =

Repayments =

Total cash form financing =

Ending cash balance =

*Schedule of cash collections =

Cash sales =

Add: Collections form prior month =

Total Collections =