Question

(Cash budget​) The Sharpe​ Corporation's projected sales for the first 8 months of 2016 are shown in the following​ table:

January	​$190,000	May	​$300,000
February	$120,000	June	$270,000
March	$135,000	July	$225,000
April	$240,000	August	$150,000

Of​ Sharpe's sales, 30 percent is for​ cash, another 50 percent is collected in the month following the​ sales, and 20 percent is collected in the second month following sales. November and December sales for 2015 were $220,000 and $175,000 respectively. Sharpe purchases its raw materials 2 months in advance of its sales. The purchases are equal to 55 percent of the final sales price of​ Sharpe's products. The supplier is paid 1 month after it makes a delivery. For​ example, purchases for April sales are made in​ February, and payment is made in March. In​ addition, Sharpe pays $ 9,000 per month for rent and $20,000 each month for other expenditures. Tax prepayments of $21,000 are made each​quarter, beginning in March. The​ company's cash balance on December​ 31, 2015, was $22,000. This is the minimum balance the firm wants to maintain. Any borrowing that is needed to maintain this minimum is paid off in the subsequent month if there is sufficient cash. Interest on​ short-term loans​ (12 percent) is paid monthly. Borrowing to meet estimated monthly cash needs takes place at the beginning of the month.​ Thus, if in the month of April the firm expects to have a need for an additional​ $60,500, these funds would be borrowed at the beginning of April with interest of​ $605 (0.12times×​1/12times×​$60,500) owed for April and paid at the beginning of May.

a. Prepare a cash budget for Sharpe covering the first 7 months of 2016.

Fill in the Collections for the month of​ January:  ​(Round to the nearest​ dollar.)

	Nov	Dec	Jan	Feb	Mar	Apr	May	June	July
Sales	​$220,000	​$175,000	​$190,000	​$120,000	​$135,000	​$240,000	​$300,000	​$270,000	​$225,000
​Collections:
Month of sale ​(30​%)			nothing
First month ​(50​%)			nothing
Second month ​(20​%)			nothing
Total Collections			​$nothing

b. Sharpe has​ $200,000 in notes payable due in July that must be repaid or renegotiated for an extension. Will the firm have ample cash to repay the​ notes?

Answer 1

	Nov	Dec	Jan	Feb	Mar	Apr	May	Jun	Jul	August
Sales	$220,000	$175,000	$190,000	$120,000	$135,000	$240,000	$300,000	$270,000	$225,000	$150,000
Collections:
Month of sales 30%			Nothing	36000	40500	72000	90000	81000	67500	45000
First Month 50%			Nothing	95000	60000	67500	120000	150000	135000	112500
Second Month 20%			Nothing	35000	38000	24000	27000	48000	60000	54000
Total Collection			0	166000	138500	163500	237000	279000	262500	211500
Purchase Of Raw Materials	104500	66000	74250	132000	165000	148500	123750	82500	0
Payment of Raw Materials		104500	66000	74250	132000	165000	148500	123750	82500

Cash Budget

			Jan	Feb	Mar	Apr	May	Jun	Jul
Opening Cash Balance			$22,000	$22,000	$22,000	$22,000	$22,000	$22,000	$22,000
Receipts:
Collection from Sales			$0	$166,000	$138,500	$163,500	$237,000	$279,000	$262,500
Total Receipts			$0	$166,000	$138,500	$163,500	$237,000	$279,000	$262,500
Payments:
Payment of Raw Materials			$66,000	$74,250	$132,000	$165,000	$148,500	$123,750	$82,500
Rent			$9,000	$9,000	$9,000	$9,000	$9,000	$9,000	$9,000
Other Expenditures			$20,000	$20,000	$20,000	$20,000	$20,000	$20,000	$20,000
Tax Payment			$0	$0	$21,000	$0	$0	$21,000	$0
Interest on short term loan			$10,556	$10,556	$10,762	$15,347	$15,347	$10,932	$1,500
Repayment of Loan			$0	$52,194	$0	$0	$44,152	$94,318	$15,000
Total Payments			$105,556	$166,000	$192,762	$209,347	$236,999	$279,000	$128,000
Balance			-$83,556	$22,000	-$32,262	-$23,847	$22,000	$22,000	$156,500
Borrowing taken			$105,556	$0	$54,262	$45,847	$0	$0	$0
Closing Cash Balance			$22,000	$22,000	$22,000	$22,000	$22,000	$22,000	$156,500
Minimum Amount need to Maintain			$22,000	$22,000	$22,000	$22,000	$22,000	$22,000	$22,000

b.

No, the firm has not sufficient cash to repay the amount of notes payable amounting $200000. They just have $156500 Cash in Hand.