E22-34 Preparing a financial budget-cash budget, sensitivity analysis Leichter A

Question

E22-34 Preparing a financial budget-cash budget, sensitivity analysis Leichter Auto Parts, a family-owned auto parts store, began January with $10,500 cash. Management forecasts that collections from credit customers will be $11,000 in January and $15,200 in February. The store is scheduled to receive $8,500 cash on a business note receivable in January. Projected cash payments include inventory purchases ($15,600 in January and $14,800 in February) and selling and administrative expenses ($2,900 each month). Leichter Auto Parts's bank requires a $10,000 minimum balance in the store's checking account. At the end of any month when the account balance falls below $10,000, the bank automatially extends credit to the store in multiples of $1,000. Leichter Auto Parts borrows as little as possible and pays back loans in quarterly installments of $2,000, plus 4% APR interest on the entire unpaid principal. The first payment occurs three months after the loan. Requirements 1. Prepare Leichter Auto Parts's cash budget for January and February

Explanation / Answer

Cash Budget

Cash Budget

January February Opening Balance        10,500.00         11,500.00 Collection from Customers        11,000.00         15,200.00 Note Receivables           8,500.00 Payment for inventory       -15,600.00        -14,800.00 Selling & Administrative Expenses         -2,900.00          -2,900.00 Balance Before Loan        11,500.00            9,000.00 Credit Taken for minimum balance 0.00            1,000.00 Closing Balance        11,500.00        10,000.00

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