Question 5 - Cash Budget (30 marks)

Mountain Sports has aquired an open line of credit up to a maximum of $350,000. It will be necessary to convince the bank manager of this new Canmore branch ability to repay its line of credit including any interest.

9. Borrowing and Repayments: Any borrowing will take place on the first day of the quarter and any repayments are paid at the end of the quarter. All borrowing and payments are made in increments of $1000. Interest on borrowing can be ignored. Required: Prepare a cash budget for the first year of operation in Canmore by quarter and in total. Show clearly on your budget the quarter[s] in which borrowing will be needed and the quarter[s] in which repayments can be made, as requested by the company's Mountain Sports has aquired an open line of credit up to a masimum of $350,000. It will be necessary to convince the bank manager of this new Canmore branch ability to repay its line of credit including any interest. Management has provided the following list of assumptions to help in the preparation of the cash budget complete the cash budyed: 3. Type of collections from customers: Cash sales are collected in the quarter of the sale, all credit sales are collected in the quarter atter the sale. 4. Merchandise purchases Merchandise purchases (cost of goods sold) are all paid in the quarter following purchase. (Quarter 1 purchases are bought in Quarter 1but paid for in quarter 2). 5. Operating expenses All other operating expenses (all expenses except cost of goods sold) are paid on a monthly basis. Management has provided the following income statement to the bank manager the expected net income in the next year