Question

You are provided with the following information taken from Sage Hill Inc.’s March 31, 2017, balance sheet.

Cash $ 12,280

Accounts receivable 23,120

Inventory 37,100

Property, plant, and equipment, net of depreciation 123,400

Accounts payable 22,910

Common stock 152,900

Retained earnings 12,320

Additional information concerning Sage Hill Inc. is as follows.

1. Gross profit is 24% of sales.

2. Actual and budgeted sales data:

March (actual) $47,100

April (budgeted) 72,700

3. Sales are both cash and credit. Cash collections expected in April are:

March $18,840 (40% of $47,100)

April

43,620

(60% of $72,700)

$62,460

4. Half of a month’s purchases are paid for in the month of purchase and half in the following month. Cash disbursements expected in April are:

Purchases March

$22,910   

Purchases April

28,910

$51,820

5. Cash operating costs are anticipated to be $12,110 for the month of April.

6. Equipment costing $2,530 will be purchased for cash in April.

7. The company wishes to maintain a minimum cash balance of $12,240. An open line of credit is available at the bank. All borrowing is done at the beginning of the month, and all repayments are made at the end of the month. The interest rate is 13% per year, and interest expense is accrued at the end of the month and paid in the following month.

Prepare a cash budget for the month of April. Determine how much cash Sage Hill Inc. must borrow, or can repay, in April.

SAGE HILL INC.

Cash Budget

$

:

:

$

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Answer 1

• All working forms part of the answer
• Cash Budget for April

	Beginning Balance	$      12,280.00
	Add: Cash Collected-
	for March	$      18,840.00
	for April	$      43,620.00
A	Total cash available	$      74,740.00
	Less: Disbursements
	Purchases paid of March	$      22,910.00
	Purchases paid of April	$      28,910.00
	Operating Cost	$      12,110.00
	Equipment purchased	$        2,530.00
B	Total disbursement	$      66,460.00
C=A-B	Excess of cash available over disbursement	$        8,280.00
D	Minimum Cash Balance required	$      12,240.00
	Financing:
E=D-C	Borrowed/(Repaid)	$        3,960.00
	Interest	$                     -
F	Total Financing	$        3,960.00
G=C+F	Ending cash balance	$      12,240.00

• Since, the ‘excess of cash available over disbursement is $8,280, which is $3,960 less than the minimum cash balance required at the end of the month, $3,960 will be borrowed at the beginning of the month.
• Interest will not be deducted in April cash Budget because it is to be paid in May.