( Cash budget ) The Sharpe Corporation’sprojected sales for the first eight mont
ID: 2663229 • Letter: #
Question
(Cash budget) The Sharpe Corporation’sprojected sales for the first eight months of 2004 are asfollows:January $90,000, February 120,000, March 135,000, April240,000, May $300,000, June 270,000 July 225,000, August 150,000 Of Sharpe’s sales, 10 percent is for cash, another 60percent is collected in the month following sale, and 30 percent iscollected in the second month following sale. November and Decembersales for 2003 were $220,000 and $175,000, respectively. Sharpe purchases its raw materials two months in advance ofits sales equal to 60 percent of their final sales price. Thesupplier is paid one month after it makes delivery. For example,purchases for April sales are made in February and payment is madein March. The company’s cash balance at December 31, 2003,was $22,000; a minimum balance of $15,000 must be maintained at alltimes. Assume that any short-term financing needed tomaintain the cash balance is paid off in the month following themonth of financing if sufficient funds are available. Interest onshort-term loans (12 percent) is paid monthly. Borrowing tomeet estimated monthly cash needs takes place at the beginning ofthe month. Thus, if in the month of April the firm expects to havea need for an additional $60,500, these funds would be borrowed atthe beginning of April with interest of $605 (.12 × 1/12× $60,500) owed for April and paid at the beginning ofMay. a. Prepare a cash budget for Sharpe covering the firstseven months of 2004. b. Sharpe has $200,000 in notes payable due in July thatmust be repaid or renegotiated for an extension. Will thefirm have ample cash to repay the notes? (Cash budget) The Sharpe Corporation’sprojected sales for the first eight months of 2004 are asfollows:
January $90,000, February 120,000, March 135,000, April240,000, May $300,000, June 270,000 July 225,000, August 150,000 Of Sharpe’s sales, 10 percent is for cash, another 60percent is collected in the month following sale, and 30 percent iscollected in the second month following sale. November and Decembersales for 2003 were $220,000 and $175,000, respectively. Sharpe purchases its raw materials two months in advance ofits sales equal to 60 percent of their final sales price. Thesupplier is paid one month after it makes delivery. For example,purchases for April sales are made in February and payment is madein March. The company’s cash balance at December 31, 2003,was $22,000; a minimum balance of $15,000 must be maintained at alltimes. Assume that any short-term financing needed tomaintain the cash balance is paid off in the month following themonth of financing if sufficient funds are available. Interest onshort-term loans (12 percent) is paid monthly. Borrowing tomeet estimated monthly cash needs takes place at the beginning ofthe month. Thus, if in the month of April the firm expects to havea need for an additional $60,500, these funds would be borrowed atthe beginning of April with interest of $605 (.12 × 1/12× $60,500) owed for April and paid at the beginning ofMay. a. Prepare a cash budget for Sharpe covering the firstseven months of 2004. b. Sharpe has $200,000 in notes payable due in July thatmust be repaid or renegotiated for an extension. Will thefirm have ample cash to repay the notes?
Explanation / Answer
Cash Buget Jan Feb Mar April May June July Op_Bal 22000 130000 167500 136000 97000 149500 293500 Sales Nov 66000 Dec 105000 52500 Jan 9000 54000 27000 Feb 12000 72000 36000 Mar 13500 81000 40500 April 24000 144000 72000 May 30000 180000 90000 June 27000 162000 July 22500 Aug Total 180000 118500 112500 141000 214500 279000 274500 Cash Ava 202000 248500 280000 277000 311500 428500 568000 Purchase 72000 81000 144000 180000 162000 135000 90000 Cl_Bal 130000 167500 136000 97000 149500 293500 478000 The Notes payable can be paid in July.
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