Question

Transcript Company is preparing a cash budget for June. The company has $125,000 cash at the beginning of the month and anticipates having total sales of $1,222,000, consisting of 25% cash sales and 75% credit card sales. The bank charges 3 percent for credit card deposits. The firm sets its selling price at 150 percent of the cost of purchases and pays the cost of each month's sales at the end of the month.

Other cash disbursements are $66,000 per month, 4 percent of the total sales and the cash purchase of a new tractor for $125,000. In addition, a $545,000 note will be due this month for equipment purchased last year. Transcript Company has an agreement with its bank to maintain a cash balance of $125,000.

Required: What is the cash balance and what amount, if any, must the company borrow during June?

Answer 1

Note : I have rounded off answer to nearest dollar

Answer

Cash Balance at the end = $125000

Borrowings required = $ 405042

Transcript Company
Cash Budget for June
Beginning cash balance	$            125,000
Add:
Cash Sales 25% of $1222000	$            305,500
Credit card sales 75% of $1222000 less 3% Bank charges	$            889,005
Total Available Cash	$        1,319,505
Less:
Cash Payments for merchandise = 1222000*100/150	$            814,667
Monthly Cash Disbursements	$              66,000
4% of Total Sale = 4% of 1222000	$              48,880
New Tractor purchase	$            125,000
Note Due for payment	$            545,000
Total Disbursements	$        1,599,547
Net Cash Balance or Deficiency of Cash	$         (280,042)
Add; Financing	$            405,042
Less: Repayment of borrowings
Ending Cash Balance	$            125,000

Workings

Amount of merchandise purchases and paid during June = $1222000 x 100/150 = $814666.67 or rounded off to $814667

Amount of borrowings  

Cash deficient after disbursements = $280042

Ending balance required = $125000

So borrowings required = $280042 + $125000 = $405042

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