Terry's Equipment Center, referred to in Problem 24-2, is also preparing a cash budget for the first two quarters. In addition to the data given in Problem 24-2, the following estimates are available:
€¢ Three-fourths of the receivables will be paid in the quarter in which the sale is made and 24 percent in the following quarter.
€¢ Sixty percent of merchandise purchased and two-thirds of operating expenses will be paid for in the quarter in which the purchase is made, and the balance in the following quarter.
€¢ The ending inventory of each quarter should be equal to one-third of the amount of estimated cost of sales for the coming quarter.
€¢ An additional $22,500 equipment investment will have to be made at the end of the second quarter to handle the increased sales volume expected in the third quarter.
Required:
a. Prepare a cash budget for the first and second quarters.
b. Assuming that a minimum cash balance of $5,000 is desired at all times, what steps would you advise Terry's Equipment Center to take at the end of each of the first two quarters?
Problem 24-2
Terry's Equipment Center has been organized to sell a line of lawn and garden equipment. The company began operations on January 1 with the following assets:

Sales for January, February, and March (i.e., the first quarter) are expected to be $140,000; they are expected to be $280,000 for the next three months, and $325,000 for the three months after that. Certain expenses are expected to vary with sales as follows:

Other expenses not expected to vary with sales:

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Cash Inventory Land 514,000 29,000 31,000 Buildings and equipment $250,000 (useful life 20 years, no residual value, of which $210,000 relates to selling and $40,000 to general and administrative activities) Cost of goods sold Bad debts Variable selling expenses Variable administrative expenses Percent of Sales Dollars 60 2 14 Selling Administrative Depreciation $25,000 per quarter 18,550 per quarter 3,125 per quarter