The Halifax Brewing Company is budgeting for the next year. Exhibit 1 shows the beginning

balance sheet of the company. The company expects to collect the beginning balance of accounts

receivable in January. In general, 30 percent of the company's sales are on a cash basis. Of the

credit sales, 40 percent are paid in the following month, and 60 percent are paid in the second

month after the sale. The accounts payable at the beginning of the year must be paid in January.

All materials are purchased on credit and paid for in the following month.

Exhibit 1

Halifax Brewing Company

balance sheet

January 1,2016

Assets Liabilities and Equities

cash $10,000 account payable $3,000

account receivable 20,000 long-term debt 50,000

inventory 30,000

total current asset $60,000 total liabilities $53,000

fixed assets 200,000 common shares 10,000

accumulated deprecation (90,000) retained earnings 107,000

total assets $170,000 total Liabilities and Equities $170,000

The long-term debt has an annual interest rate of 12 percent. Interest payments of 1 percent of the

principal are made each month. The long-term debt is not due for another five years. Halifax

Brewing Company makes two different types of beer; an ale and a porter. The ale is a lighter beer

that requires fewer ingredients than does the darker and heavier porter. The following are the input

requirements for a case of each type of beer:

for making Ale for making porter

materials quantity per case cost materials quantity per case cost

hopes 5 kg. $0.30/kg. hopes 10 kg. $0.30/kg.

yeast 50 g. $0.10/50 g. yeast 50 g. $0.10/50 g

sugar 0.5 kg. $0.10/kg. sugar 0.8 kg. $0.10/kg.

bottles 24 $0.05/bottle bottles 24 $0.05/bottle

The labor to make a case of beer is the same for each type of beer: 0.20 hours at $10/hour. Labor

is paid in the month earned.

Monthly overhead expenses are paid in the month incurred and expected to be:

Electricity $ 2,000

Indirect labor 20,000

Rent 5,000

Depreciation 2,000

Ale sells for $10 per case and porter sells for $12 per case. Estimated sales in cases for Halifax

Brewing are:

Ale Porter

January 3,000 4,000

February 3,000 5,000

March 4,000 3,000

April 2,000 2,000

The beginning inventory includes 2,000 cases of ale and 3,000 cases of porter. The company

prefers to have inventory at the end of each month equal to the expected sales in the next month.

Halifax Brewing Company uses a first-in-first-out (FIFO) method of costing inventory. Halifax

Brewing Company must buy a new bottling machine for $20,000 at the end of January.

a. Estimate cash flows in each of the months.

b. Does the company need to borrow money in any of the months?

c. Prepare a balance sheet as of the end of March and a profit and loss statement for the first

three months. Assume that the company borrows cash at an interest rate of 1 percent per

month to make up any cash shortfall.