Transcript Company is preparing a cash budget for February.

 

The company has $150,000 cash at the beginning of February and anticipates total sales of $800,000, consisting of 25% cash sales and 75% bank credit-card sales.

The bank charges 3 percent for credit-card deposits.

The firm sets its selling price at 160 percent of the cost of purchases and pays the cost of each month's sales at the end of the month.

Operating expenses are $45,000 per month, of which $25,000 is depreciation expense. Selling expenses (commissions) each month amount to 4 percent of total sales dollars.

In addition, a $600,000 note will be due in February for equipment purchased last August. In addition to the principal amount, interest for one month (at 12% per year) will be paid in February.

Transcript Company has an agreement with its bank to maintain a minimum cash balance of $100,000.

 

Required:

Prepare in good form a cash budget that shows the amount, if any, that the company must borrow during February. Separate your budget, at a minimum, into the following categories:

Beginning Cash Balance

Operating Cash Flows (Both Inflows and Outflows)

Cash Balance before Financing Effects

Financing Activity

Ending Cash Balance