Question

Of​ Sharpe's sales,

30

percent is for​ cash, another

40

percent is collected in the month following the​ sales, and

30

percent is collected in the second month following sales. November and December sales for 2018 were

​$250,000

and

​$205,000​,

respectively.Sharpe purchases its raw materials 2 months in advance of its sales. The purchases are equal to

60

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

$8,000

per month for rent and

$15,000

each month for other expenditures. Tax prepayments of

$20,000

are made each​ quarter, beginning in March. The​ company's cash balance on December​ 31, 2018, was

​$24,000.

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

​(0.12×​1/12×​$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 2019.

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?

a. Prepare a cash budget for Sharpe covering the first 7 months of 2019.  

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

	Nov	Dec	Jan	Feb	Mar	Apr	May	June	July
Sales	​$250,000	​$205,000	​$220,000	​$150,000	​$165,000	​$270,000	​$330,000	​$300,000	​$255,000
​Collections:
Month of sale ​(30​%)			nothing
First month ​(40​%)			nothing
Second month ​(30​%)			nothing
Total Collections			​$nothing

Answer 1

1. The Cash budget for January to July 2019 is attached in the image.

2. The closing cash balance of July is $ 581,000, therefore it can repay the notes payable of $ 200,000 in the month itself.

3. Collections for January:

Cash Sales (30% of sales of january)=( 30% *220000)=$ 66,000

Credit Sales ( 40% of Sales of December)=(40% *205000)=$ 82,000

(30% of sales of November)= (30% * 250000)= $ 75000

Total Collection from Credit sales= $( 82000+ 75000)= $157,000

Total Receipts= Cash Sales+Total Collection from Credit sales

= 66000+ 157000= $ 223,000.