Question

Reproduced below are selected financial data at the end of Year 6 and forecasts for the end of Year 7 for AlMasa Company:

Account	Year 6	Year 7 (Forecast)
Cash	$42,000	?
Accounts receivable	90,000	?
Inventory	38,400	$90,000
Fixed assets	120,000	120,000
Accumulated depreciation	25,800	30,000
Accounts payable	78,000	146,400
Notes payable	21,000	18,000
Accrued taxes	10,800	0
Capital stock	120,000	120,000

Additional forecast estimates for Year 7:

Sales                                       $495,000                  Net Income              $12,000                   

Cost of sales                         55% of sales forecast        Days’ sales in receivables 60 days

Required:

Assuming all expenses are paid in cash when incurred and that cost of sales is exclusive of depreciation, forecast the ending cash balance for year 7. If AlMasa Company wishes to maintain a minimum cash balance of $60,000, must the company borrow?   

Answer 1

Cash Flow Statement
Opening Balance		42000
Cash flow from Operating Activities:		27830
Net profit	12000
Less : Increase in Current Assets:
Account Receivable
Inventory	-51600
Add : Decrease in Current Assets:
Account Receivable	8630
Add : Increase in Current Liabilities:
Accounts payables	68400
Less : Decrease in Current Liabilities:
Notes Payable	-3000
Taxes Payable	-10800
Add: Depreciation	4200
Ending Cash Balance		69830
Company need not to borrow, as cash balance
is more than the desired balance.
Working Note:
Calculation of Receivables in Year 7:
Forecast Sales	495000
Receivables Period	60 Days
Receivables at end (495000/60*365)	81370