The Sharpe Corporation's projected sales for the first eight months of2011
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sharp.docxData Table January $91,000 May $299,700 February 119,400 June 270,000 March 135,200 July 224,800 April 241,000 August 151,000 Page 1
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6. (Preparation of a cash budget) The Sharpe Corporation's projected sales for the first eight months of2011 are as follows: Of Sharpe's sales, 10 percent is for cash, another 60 percent is collected in the month following the sale, and 30 percent is collected in the second month following the sale. November and December sales for 2010 were $219,500 and $176,000, respectively. Sharpe purchases its raw materials two months in advance of its sales equal to 60 percent of their final sales price. The supplier is paid one month after it makes delivery. For example, purchases for April sales are made in February and payment is made in March. In addition, Sharpe pays $9,000 per month for rent and $20,900 each month for other expenditures. Tax prepaYments of $22,700 are made each quarter, beginning in March. The company's cash balance at December 31, 2010, was $21,100; a minimum balance of $15,000 must be maintained at all times. Assume that any short-term financing needed to maintain the cash balance is paid off in the month following the month of financing if sUfficient funds are available. Interest on short-term loans (11 percent) is paid monthly. Borrowing to meet estimated monthly cash needs takes place at tbe beginning ofthemonth. Thus, if in the month of April the firm expects to have a need for an additional $59,990, these funds would be borrowed at the beginning of April with interest of$550 (i.e., 11%x 1/ 12 x $59,990) owed for April being paid at the beginning of May. a. Prepare a cash budget for Sharpe covering the first seven months of 20 11. b. Sharpe has $200,700in notespayable due in July that must be repaid or renegotiated for an extension. Will the finn have suft1cientcash to repay the notes? a. Prepare a cash budget for Sharpe covering the first seven months of 20 11. Complete (month bYlnonth) the cash budget below: (Round to the nearest dollar.) NOV DEC JAN Sales $ 219,500 $ 176,000 $ 91,000 Cash Receipts f~'.",'" _"F"-"V""~ ~':""~'''' Sales for cash (l0%) $ .'\;i~;1q8'i, First month after sales (60%) $ ltb560()i~ ~ -.' .-::<:; .... -".' Second month after sales (30%) $ r'iib5!850"j Total Cash Receipts $ ~.",;i~1~.2A,~.Q} Cash disbursements Raw materials Rent Other expenditures ~ax prepayments Total Cash Disbursements Net Change in Cash Page 7
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6. Net change in cash for period ( cont.) (+) Beginning cash balance (-) Interest on short~term borrowing (-) Short-term borrowing repayments (=) Ending cash balance bl borrowing New Financing Needed Financing needed for period $ Ending cash balance $ 21,100 $ Cumulative borrowing $ DEC JAN FEB Sales $ 176,000 $ 91,000 $ 119,400 Cash Receipts Sales for cash (10%) -$1 __ First month after sales (60%) $1 __ Second month after sales (30%) $-1====1 Total Cash Receipts $ Cash disbursements Raw materials $I~_- Rent $1=== = $I==-~_-~ Other expenditures Tax prepayments $1--- Total Cash Disbursements $I __ Net Change in Cash Net change in cash forperiod $ • (+)Beginning cash balance $ (-) Interest on short-term borrowing $---1 (-) Short-term borrowing repayments $---1 (=) Ending cash balance'blbofiowing $~ __ New Financing Needed Financing needed fOr period $1 __ Ending cash balance $I~-_-_----- Cumulative borrowing $1===== Page 8
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6~ JAN FEB MAR (cont.) Sales $ 91,000 $ 119,400 $ 135,200 Cash Receipts Sales for cash (10%) $ 1 First morith after sales (60%) $ 1 Second month after sales (30%) $ I Total Cash Receipts $1 Cash disbursements Raw materials -$ 1 Rent $ I Other expenditures. $ I Tax prepayments $ 1 Total Cash Disbursements $ 1 Net Change in Cash Net change in cash for period $ 1 (+) Beginning cash balance $ 1 (~) Interest on short-:-term borrowing $ (-) Short~term borrowing repayments $ 1 (=) Ending cash balance bl borrowing $ I New Financing Needed Financing needed for period $ 1 Ending cash balance $ I Cumulative borrowing $ FEB MAR APR Sales $ 11'9,400 $- 135,200 $ 241,000 Cash Receipts Sales for cash (10%) $ I First month after sales (60%) $ Second month after sales (30%) $ I Total Cash Receipts $ I I Cash disbursements Raw materials $ I _ . . _--_._-_._ . . ~_ ............ _- ... . _ ..... . _~. __ _ "_._. _ . . __ _ . . _u. ~ ... ................ _._ . . _ .. . _ ..•..•.. __ . . _ .. . _ .. . ........... _ ......... _ ......... ~. _ .... - ........... __ .. . __ . ~ .. . _ . . _._-_ ...... _ . . ~. _ ..... - ..... ...................... __ ., ... ~ •••••••••••••••••••••• mH •••••••••• _ ••• Page 9
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6. Rent $\ ( cont.) . Other expenditures $1 Tax prepayments' $1 Total Cash Disbursements $1 ~ Net Change in Cash Netchange in cash for period $1 (+) Beginning cash balance' (-) Interest on short-term borrowing $1 (~) Short-term borrowing repayments $1 (=)Ending cash balance bl borrowing $1 New Financing Needed Financing needed for period $1 Ending cash balance $1 Cumulative borrowing $1 MAR APR MAY Sales 135,200 241,000 299,700 Cash Receipts Sales for cash (10%) $1 First month after sales (60%) $1 Second month after sales (30%) $1 Total Cash Receipts $1 Cash disbursemerits Raw materials $1 Rent $1 Other expenditures 1 Tax prepayments Total Cash Disbursements Net Change in Cash Net change in cash for period $I __ (-) Interest on short~term borrowing $I- ~ $1==== = ~ _ - _ -_-~ (+) Beginning cash balance $1===== (-) Short~term borrowing repayments Page 10
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6. (=) Ending cash balance bl borrowing $ I I (cont. ) New Financing Needed Financing needed for period $ I Ending cash balance $ I Cumulative borrowing $ I APR MAY JUN Sales -$ 241;000 $ 299,700 $ 270,000 Cash Receipts Sales for cash (l 0%) $ First month after sales (60%) $ Second month after sales (30%) $1 Total Cash Receipts $ Cash disbursements Raw materials $ I 'I Rent $ I Other expenditures $ Tax prepaymeiits $ 1 Total Cash Disbursements $ I Net Change in Cash Net change in cash for period $ I (+) Beginning" cash balance $ I (-) Interest on short-tenn borrowing $ (~) Short-term borrowing repayments $ (=) Endil1g cash balance bl borrowing $ 1 New Financing Needed Financil}g needed for period $ Ending cash balance $ I Cumulative borrowing $ MAY JUN JUL Sales $ 299,700 $ 270,000 $ 224,800 $ Cash Receipts Sales for cash (10%) $ • ___ •••••• _._ ••• _._ ••••••••••• ~_ •• R.h_ ••• _~ __ _ ••• _ ••••••••••••• R ••••••••••• _. __ ••••• ....................... ...... ....•...... __ .... _ ... ...... __ ...... ~ ....... __ .....••.... ~- ••••••••• _._ •••••••• _ •• ___ ••••••••• _ ••••••• h ••••• Page II
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6. First month after sales (60%) $1 (cont.) Second month after sales (30%) $1 Total Cash Receipts $1 Cash disbursements Raw materials $1 Rent $1 Other expenditures $1 Tax prepayments $1 Total Cash Disbursements $1 Net Change in Cash Net change in cash for period $1 (+) Beginning cash balance $1 (-) Interest on short-term borrowing $1 (-) Short-term borrowing repayments $1 (=) Ending cash balance bl borrowing $1 New Financing Needed Financing needed for period $1 -I Ending cash balance $1 Cumulative borrowing $1 b. Sharpe has $200,700 in notes payable due in July that must be rep.aid or renegotiated for an extensi. firm have ample cash to repay the notes? (Select from the drop-down menus.) No thecompany will have enough money to pay the debt. Yes will not Data Table Q1 January $91,000 May $299,700 February 119,400 June 270,000 March 135,200 July 224,800 April 241,000 August 151,000 Page 12
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6. NOV DEC ( cont.) Sales $ 219,500 $ 176,000 ~ Cash Receipts Sales for cash (10%) ~ First month after sales (60%) ~ Second month after sales (30%) ~ Total Cash Receipts ~ Cash disbursements Raw materials ~ Rent ~ Other expenditures ~ Tax prepayments ~ Total Cash Disbursements ~ Net Change in Cash Nefchange in cash.for period ~ (+) Beginning cash balance ~ (-) Interest on short-tenn borrowing ~ (-) Short--'term borrowing repayments ~ (=) Ending cash balance bl borrowing ~ New Financing Needed Financing needed for period ~ Ending cash balance $ 21,100 ~ YOU ANSWERED:. Cumulative.borrowing ~ Page 13
