Question

Question 1

1. The city of Charleston had the following sales of water for the selected months of 2017:

   Month	Sales
   February	$60,000
   March	45,000
   April	60,000
   May	42,500
   June	100,000
   July	120,000

   All sales are on credit. Historically, 60 percent is collected in the month of sale, 30 percent during the first month following the sale, and 10 percent in the second month following the sale.

   Water purchases by month are as follows:

   Month
   February	$60,000
   March	40,000
   April	45,000
   May	59,750
   June	52,500
   July	90,000

   Water is purchased in the month of sale. All purchases are paid during the month following the purchase.

   Operating costs are $18,000 and everything is paid in cash except for depreciation, which totals $8,000 a month.

   The city plans on purchasing some new equipment in May for $25,000 in exchange for a note payable.

   The April 1 cash balance is expected to be $5,000.

   The city must maintain a minimum cash balance of $10,500, and money can be borrowed from a local bank in increments of $1,000. The city borrows money at the beginning on the first day of the month and repays loans and interest on the last day of the month. The bank charges the city an annual interest rate of 15%.

   Required:

   Prepare a cash budget for April, May, June and in for the quarter, and based on your answer complete the following table:

   Round to the nearest dollar and DO NOT enter decimals, or commas and if a zero needs to be entered, enter "0".

Answer 1

	February	May	April	May	June
Sales	$ 60,000	$ 45,000	$ 60,000	$ 42,500	$ 100,000
Collections in the month of sale (60%)	$ 36,000   {60,000*60%}	$ 27,000   {45,000*60%}	$ 36,000   {60,000*60%}	$ 25,,500   {42,500*60%}	$ 60,000   {1,00,000*60%}
Collections during first month following the sale (30%)		$ 18,000   {60,000*30%}	$ 13,500   {45,000*30%}	$ 18,000   {60,000*30%}	$ 12,750   {42,500*30%}
Collections during second month following the sale (10%)			$ 6,000   {60,000*10%}	$ 4,500   {45,000*10%}	$ 18,000   {60,000*30%}
Total Cash Collection	$ 36,000	$ 45,000	$ 55,500	$ 48,000	$ 90,7

Prepare a Cash Budget for April , May , June and for the Quarter :
	April	May	June	Quarter
Beginning Cash Balance (A)	$ 5,000	$ 10,500	$ 10,500	$ 26,000
Add: Total Cash Collections (Note 1) (B)	$ 55,500	$ 48,000	$ 90,750	$ 194,250
Less:
Water Disbursements	($45,000)	($59,750)	($52,500)	($157,250)
Operating Costs	($10,000)	($10,000)	($10,000)	($30,000)
Interest (15% PA )	($ 13) {1000*15%*1/12}	($ 75) {$6,013*15%*1/12}	($ 348) {27,838*15%*1/12}	($436)
Total Cash Payments ( C	($55,013)	($69,825)	($62,848)	($ 187,686)
Available Balance (A+B-C)	$ 5,487	($ 11,325)	$ 38,402	$ 32,564
Borrowings	$ 6,013 {1000+5,013}	$ 27,838 {6,013+21,825}		$ 33,851
Repayments			($ 27,838)	($ 27,838)
Ending Cash Balance	$ 10,500	$ 10,500	$ 10,564

Here, Depreciation expense per month $ 8,000 and Purchase of New Equipment in exchange for Note Payable $ 25,000. these transaction

are not shown in Cash Budget Because of it doesn't Invlove Cash .