Question

You own a company. Here are the actual results from 2018 and the projected results for 2019.

	Sales (in thousands)	Purchases (in thousands)
October 2018	$340	$500
November 2018	410	550
December 2018	1,320	1,200
January 2019	650	350
February 2019	250	140
March 2019	260	140

Additional information:

Cash balance on January 1, 2019	$300
Minimum desired cash balance	150
Wages payable monthly	175
Dividend payable in February	400
Principal payment on debt due in March	200
Interest due in March	90
Taxes payable in February	180
Addition to accumulated depreciation in March	30

Presented below are the Income Statement and Balance Sheet for December 31, 2018.

	Income Statement
	Jan. 1 – Dec. 31, 2018 (in thousands)
Net Sales		$ 6,000
Cost of goods sold		3,900
Gross profit		2,100
Selling Expenses		920
Administrative Expenses		700
Interest Expense		90
Depreciation		90
Income before tax		$ 300
Tax (40%)		120
Income after tax		$ 180
	Balance Sheet
	December 31, 2018 (in thousands)
Assets
Cash		$ 300
Accounts Receivable		960
Inventory		1,800
Total Current Assets		$ 3,060
Property, Plant and Equipment		$ 900
Accumulated Depreciation		150
Net Fixed Assets		750
TOTAL ASSETS		$ 3,810
Liabilities
Accounts Payable		$ 1,740
Miscellaneous accruals		60
Current portion of long-term debt		210
Taxes Payable		300
Total Current Liabilities		2,310
Long-term Debt		990
TOTAL LIABILITIES		$3,300
Shareholders’ Equity		$ 510
TOTAL LIABILITIES & EQUITY		$ 3,810

Additional Information:

• Cost of goods sold is equal to the total of items purchased in the first quarter.
• Selling and Administrative expenses consist entirely of wages
• Depreciation is at the rate of $30,000 per quarter
• Miscellaneous accruals are not expected to change in the first quarter of 2019
• Current portion of long-term debt is $210 due in March 2019. The debt payment is made once a year.

REQUIRED:
Part 1: You want to estimate your company’s cash balances for the first three months of 2019. Use the following information and create a monthly cash budget for January through March. Your sales are 25% for cash, and the remainder are paid within 30-days. All purchases are on 60-day credit terms.

Prepare a spreadsheet (and all spreadsheets MUST have formulas!!! The only time you may enter a number is when the number is given in the problem. All other numbers must be the result of a formula in a cell.) Determine if you will have enough cash to invest or if you’ll need to arrange for a loan.

Answer 1