Willborn Builders in the building construction business. In Year 2, it is expected that 40 percent of a month's sales will be collected in cash, with the balance being collected the following month. Of the purchases, 50 percent are paid the following month, 30 percent are paid in two months, and the remaining 20 percent are paid during the month of purchase. The sales force receives $2,000 a month base pay plus a 2 percent commission. Labor expenses are expected to be $4,000 a month. Other operating expenses are expected to run about $2,000 a month, including $500 for depreciation. The ending cash balance for Year 1 was $4,500.

Sales

Purchases

Year 1-Actual

November

$80,000

$70,000

December

90,000

80,000

Year 2-Budgeted

January

70,000

70,000

February

90,000

60,000

March

30,000

50,000

Required:

Prepare a cash budget and determine the projected ending cash balances for the first three months of Year 2.

Determine the months that the company would either borrow or invest cash