Company A has a $200000 line of credit from its bank. The bank requires the company to keep minimum of $8200 in the checking account at the end of each month, the bank automatically extends line of credit in multiples of $1000 so that the checking account balance is at least $8200 at month end.
When the company borrows, it repay in multiples of $1000 plus 2% monthly interest on entire balance.Interest and principal are paid at the end of the month following the loan. There is currently none outstanding. These Receipts and disbursements apply to the 4th quarter of current calender year:
Estimated beginning balance $8800
Estimated cash sales:
Oct $14000
Nov 29000
Dec 44000
Sales on Account:
Jul (actual) $130000
Aug (actual) 104000
Sep (actual) 128000
Oct (estimate) 135000
Nov (estimate) 142000
Dec (estimate) 188000
Projected cash collection of sales on account is estimated to be 70% in the month following sale, 20% in the 2nd month following sale and 6% in the 3rd month. The 4% beyond the 3rd month is determined to be uncollectible. The company is schedule to receive $13000 cash on a note receivable in Oct.
All inventory purchases are made on account. The following info regarding purchases is available:
Sept (actual) $120000
Oct (estimate) 112000
Nov (estimate) 128000
Dec (estimate) 95000
Cash disbursements for inventory are made in the month following purchase using an average cash discount of 3% for mtimely payment. Monthly cash disbursements for opertaing expenses during Oct, Nov, and Dec are estimated to be $38000, $41000 and $46000 respectively.
1. Prepare cash budget for Oct, Nov and Dec showing all receipts, disbursments and credit line activity.
