Question

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 65,000 May 43,350 June 110,000 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 $45,000 March 45,000 April 40,000 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%.

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".

	April	May	June	Quarter
Beginning Cash Balance		$ 5,000	$ 10,500	$10,510	$ 5,000
Cash Collections		$	$	$	$
Water disbursements		$()	$()	$()	$()
Operating Costs		$()	$()	$()	$()
Borrowings		$	$	$	$
Repayments		$	$	$	$
Interest		$	$	$	$
Ending cash balance		$10,500	$10,510	$24,215	$ 24,215

Answer 1

Calculation of cash collection from sales and preparation of cash budget is as follows:-

Interest = $2000 * 15% *3/12 = $75