Question

Chapter 15 Problem 2 James Buchanan Orthotics and Prosthetics is planning to request a line of credit from its bank. The company has produced sales estimates, and these appear in the worksheet below. Collection estimates are as follows: 10 percent within the month of sale, 75 percent in the month following the sale, and 15 percent in the second month following the sale. Labor and supplies estimates also appear in the worksheet below. Payments for labor and supplies are typically made during the month following the one in which these costs have been incurred. General and administrative salaries will amount to approximately $27,000 a month; lease payments under long-term lease contracts will be $9,000 a month; depreciation charges will be $36,000 a month; miscellaneous expenses will be $2,700 a month; income tax payments of $63,000 will be due in both September and December; and a progress payment of $180,000 on a new building must be paid in October. Cash on hand on July 1 will amount to $132,000, and a minimum cash balance of $90,000 will be maintained throughout the cash budget period. What loan will be the company require in October? May June July August September October November December January Collections worksheet: Billed charges $180,000 $180,000 $360,000 $540,000 $720,000 $360,000 $360,000 $90,000 $180,000 Collections Within 30 days 30-60 days 60-90 days Total collections Supplies worksheet: Amount of labor and supplies $90,000 $90,000 $126,000 $882,000 $306,000 $234,000 $162,000 $90,000 Payments made for labor and supplies Net cash gain (loss): Total collections Total purchases General and administrative salaries Lease payments Miscellaneous expenses Taxes Progress payment Total payments Net cash gain/loss Borrowing/surplus summary: Cash at beginning with no borrowing Cash at end with no borrowing Target cash balance (given) Cumulative surplus cash / loan balance

Chapter 15 Problem 2

James Buchanan Orthotics and Prosthetics is planning to request a line of credit from its bank. The company has produced sales estimates, and these appear in the worksheet below. Collection estimates are as follows: 10 percent within the month of sale, 75 percent in the month following the sale, and 15 percent in the second month following the sale. Labor and supplies estimates also appear in the worksheet below. Payments for labor and supplies are typically made during the month following the one in which these costs have been incurred. General and administrative salaries will amount to approximately $27,000 a month; lease payments under long-term lease contracts will be $9,000 a month; depreciation charges will be $36,000 a month; miscellaneous expenses will be $2,700 a month; income tax payments of $63,000 will be due in both September and December; and a progress payment of $180,000 on a new building must be paid in October. Cash on hand on July 1 will amount to $132,000, and a minimum cash balance of $90,000 will be maintained throughout the cash budget period. What loan will be the company require in October?

May

June

July

August

September

October

November

December

January

Collections worksheet:

Billed charges

$180,000

$180,000

$360,000

$540,000

$720,000

$360,000

$360,000

$90,000

$180,000

Collections

Within 30 days

30-60 days

60-90 days

Total collections

Supplies worksheet:
	Amount of labor and supplies			$90,000	$90,000	$126,000	$882,000	$306,000	$234,000	$162,000	$90,000
	Payments made for labor and supplies

Net cash gain (loss):
	Total collections
	Total purchases
	General and administrative salaries
	Lease payments
	Miscellaneous expenses
	Taxes
	Progress payment
	Total payments
	Net cash gain/loss

Borrowing/surplus summary:
	Cash at beginning with no borrowing
	Cash at end with no borrowing
	Target cash balance (given)
	Cumulative surplus cash / loan balance

Answer 1

					May	June	July	August	September	October	November	December	January
Collections worksheet:
	Billed charges				$180,000	$180,000	$360,000	$540,000	$720,000	$360,000	$360,000	$90,000	$180,000
	Collections
	Within 30 days				$18,000	$18,000	$36,000	$54,000	$72,000	$36,000	$36,000	$9,000	$18,000
	30-60 days					$135,000	$135,000	$270,000	$405,000	$540,000	$270,000	$270,000	$67,500
	60-90 days						$27,000	$27,000	$54,000	$81,000	$108,000	$54,000	$54,000
	Total collections				$18,000	$153,000	$198,000	$351,000	$531,000	$657,000	$414,000	$333,000	$139,500
Supplies worksheet:
	Amount of labor and supplies				$90,000	$90,000	$126,000	$882,000	$306,000	$234,000	$162,000	$90,000
	Payments made for labor and supplies					$90,000	$90,000	$126,000	$882,000	$306,000	$234,000	$162,000	$90,000
Net cash gain (loss):
	Total collections				18000	153000	198000	351000	531000	657000	414000	333000	139500
	Total purchases					90000	90000	126000	882000	306000	234000	162000	90000
	General and administrative salaries				$27,000	$27,000	$27,000	$27,000	$27,000	$27,000	$27,000	$27,000	$27,000
	Lease payments				$9,000	$9,000	$9,000	$9,000	$9,000	$9,000	$9,000	$9,000	$9,000
	Miscellaneous expenses				$2,700	$2,700	$2,700	$2,700	$2,700	$2,700	$2,700	$2,700	$2,700
	Taxes								$63,000			$63,000
	Progress payment										$180,000
	Total payments				38700	128700	128700	164700	983700	344700	452700	263700	128700
	Net cash gain/loss				-20700	24300	69300	186300	-452700	312300	-38700	69300	10800
Borrowing/surplus summary:
	Cash at beginning with no borrowing				$132,000	$111,300	$135,600	$204,900	$391,200	$151,500	$463,800	$425,100	$494,400
	Cash at end with no borrowing				$111,300	$135,600	$204,900	$391,200	($61,500)	$463,800	$425,100	$494,400	$505,200
	Target cash balance (given)				$90,000	$90,000	$90,000	$90,000	$90,000	$90,000	$90,000	$90,000	$90,000
	Cumulative surplus cash / (loan balance)				$21,300	$45,600	$114,900	$301,200	($151,500)	$373,800	$335,100	$404,400	$415,200
	Loan Balance for October - $ 151500