Question 4

a) Golden Point Company has applied at a local bank for a short-term loan of $150,000 starting on October 1, 2020. The bank's loan officer has requested a cash budget from the company for the quarter ending December 31, 2020. The following information is needed to prepare the cash budget:

Sales

$600,000

Purchases

350,000

Salaries and wages to be paid

125,000

Rent payments

7,000

Supplies (payments for)

4,500

Insurance payments

1,500

Other cash payments

22,000

A cash balance of $24,000 is planned for October 1. Accounts receivables are expected to be $48,000 on October 1. All of these accounts will be collected in the quarter ending December 31. In general, sales are collected as follows: 90% in the quarter of sale, and 10% in the quarter after sale. Accounts payable will be $480,000 on October 1 and will be paid during the quarter ending December 31. All purchases are paid in the quarter after purchase.

Required:

a) cash budget for the quarter ending December 31, 2020. Assume that the $150,000 loan will be made on October 1 and will be repaid with interest at 10% on December 31.

b) If the company desires a minimum cash balance of $18,000, will the company be able to repay the loan as planned on December 31?