James Buchanan Orthotics and Prosthetics is planning to request a line of credit
ID: 2338090 • Letter: J
Question
James Buchanan Orthotics and Prosthetics is planning to request a line of credit from its bank. The company has produced sales estimates, and these appear in the worksheet below. Collection estimates are as follows: 10 percent within the month of sale, 75 percent in the month following the sale, and 15 percent in the second month following the sale. Labor and supplies estimates also appear in the worksheet below. Payments for labor and supplies are typically made during the month following the one in which these costs have been incurred. General and administrative salaries will amount to approximately $27,000 a month; lease payments under long-term lease contracts will be $9,000 a month; depreciation charges will be $36,000 a month; miscellaneous expenses will be $2,700 a month; income tax payments of $63,000 will be due in both September and December; and a progress payment of $180,000 on a new building must be paid in October. Cash on hand on July 1 will amount to $132,000, and a minimum cash balance of $90,000 will be maintained throughout the cash budget period. What loan will be the company require in October? Many say nothing in October but someone else says Loan Balance for October - $ 151500 What is the correct way? May June July August September October November December January Collections worksheet: Billed charges $180,000 $180,000 $360,000 $540,000 $720,000 $360,000 $360,000 $90,000 $180,000 Collections Within 30 days 30-60 days 60-90 days Total collections Supplies worksheet: Amount of labor and supplies $90,000 $90,000 $126,000 $882,000 $306,000 $234,000 $162,000 $90,000 Payments made for labor and supplies Net cash gain (loss): Total collections Total purchases General and administrative salaries Lease payments Miscellaneous expenses Taxes Progress payment Total payments Net cash gain/loss Borrowing/surplus summary: Cash at beginning with no borrowing Cash at end with no borrowing Target cash balance (given) Cumulative surplus cash / loan balance
May
June
July
August
September
October
November
December
January
Collections worksheet:
Billed charges
$180,000
$180,000
$360,000
$540,000
$720,000
$360,000
$360,000
$90,000
$180,000
Collections
Within 30 days
30-60 days
60-90 days
Total collections
Supplies worksheet:
Amount of labor and supplies
$90,000
$90,000
$126,000
$882,000
$306,000
$234,000
$162,000
$90,000
Payments made for labor and supplies
Net cash gain (loss):
Total collections
Total purchases
General and administrative salaries
Lease payments
Miscellaneous expenses
Taxes
Progress payment
Total payments
Net cash gain/loss
Borrowing/surplus summary:
Cash at beginning with no borrowing
Cash at end with no borrowing
Target cash balance (given)
Cumulative surplus cash / loan balance
May
June
July
August
September
October
November
December
January
Collections worksheet:
Billed charges
$180,000
$180,000
$360,000
$540,000
$720,000
$360,000
$360,000
$90,000
$180,000
Collections
Within 30 days
30-60 days
60-90 days
Total collections
Explanation / Answer
James Buchanan Orthotics and Prosthetics May June July August September October November December January Collection worksheet Bill charged 180000 180000 360000 540000 720000 360000 360000 90000 180000 Collections Within 30 days 18000 18000 36000 54000 72000 36000 36000 9000 18000 30 to 60 days 135000 135000 270000 405000 540000 270000 270000 67500 60 to 90 days 27000 27000 54000 81000 108000 54000 54000 Total collections 198000 351000 531000 657000 414000 333000 139500 May June July August September October November December January Supplies Worksheet Amount of Labor and supplies 90000 90000 126000 882000 306000 234000 162000 90000 Payment made for labor & supplies 90000 90000 126000 882000 306000 234000 162000 90000 Net Cash Gain/(Loss) Total collection 198000 351000 531000 657000 414000 333000 139500 Total purchases 90000 126000 882000 306000 234000 162000 90000 General and administrative Salaries 27000 27000 27000 27000 27000 27000 27000 Lease payments 9000 9000 9000 9000 9000 9000 9000 Miscellaneous expenses 2700 2700 2700 2700 2700 2700 2700 Taxes 63000 Progress payments 180000 Total payments 128700 164700 983700 524700 272700 200700 128700 Net Cash Gain/(Loss) 69300 186300 -452700 132300 141300 132300 10800 Borrowing surplus summery Cash at the beginning 132000 201300 387600 90000 90000 143400 275700 Cash at the end 201300 387600 90000 90000 143400 275700 286500 Target Cash balance 90000 90000 90000 90000 90000 90000 90000 Cumulative surplus cash/(Loan) 111300 297600 -155100 0 Loan borrowed Loan repayment 67200 87900 Yes the Loan is needed at the end of September amounting to $155100 but not $151500 as mentioned in the question.
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