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(Cash budget?) The Sharpe? Corporation's projected sales for the first 8 months of 2016 are shown...

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Finance

(Cash budget?) The Sharpe? Corporation's projected sales for thefirst 8 months of 2016 are shown in the following? table:

January

?$190,000

May

?$300,000

February

??$120,000

June

??$270,000

March

??$135,000

July

??$225,000

April

??$240,000

August

??$150,000

Of? Sharpe's sales, 30 percent is for? cash, another 50 percentis collected in the month following the? sales, and 20 percent iscollected in the second month following sales. November andDecember sales for 2015 were $220,000 and $175,000 respectively.Sharpe purchases its raw materials 2 months in advance of itssales. The purchases are equal to 55 percent of the final salesprice of? Sharpe's products. The supplier is paid 1 month after itmakes a delivery. For? example, purchases for April sales are madein? February, and payment is made in March. In? addition, Sharpepays $ 9,000 per month for rent and $20,000 each month for otherexpenditures. Tax prepayments of $21,000 are made each?quarter,beginning in March. The? company's cash balance on December? 31,2015, was $22,000. This is the minimum balance the firm wants tomaintain. Any borrowing that is needed to maintain this minimum ispaid off in the subsequent month if there is sufficient cash.Interest on? short-term loans? (12 percent) is paid monthly.Borrowing to meet estimated monthly cash needs takes place at thebeginning of the month.? Thus, if in the month of April the firmexpects to have a need for an additional? $60,500, these fundswould be borrowed at the beginning of April with interest of? $605(0.12timesĂ—?1/12timesĂ—?$60,500) owed for April and paid at thebeginning of May.

a. Prepare a cash budget for Sharpe covering the first 7 monthsof 2016.

Fill in the Collections for the month of? January:???(Round tothe nearest? dollar.)

Nov

Dec

Jan

Feb

Mar

Apr

May

June

July

Sales

?$220,000

?$175,000

?$190,000

?$120,000

?$135,000

?$240,000

?$300,000

?$270,000

?$225,000

?Collections:

??Month of sale

?(30?%)

nothing

??First month

?(50?%)

nothing

??Second month

?(20?%)

nothing

?????Total Collections

?$nothing

b. Sharpe has? $200,000 in notes payable due in July that mustbe repaid or renegotiated for an extension. Will the firm haveample cash to repay the? notes?

Answer & Explanation Solved by verified expert
3.7 Ratings (455 Votes)

Nov Dec Jan Feb Mar Apr May Jun Jul August
Sales $220,000 $175,000 $190,000 $120,000 $135,000 $240,000 $300,000 $270,000 $225,000 $150,000
Collections:
Month of sales 30% Nothing 36000 40500 72000 90000 81000 67500 45000
First Month 50% Nothing 95000 60000 67500 120000 150000 135000 112500
Second Month 20% Nothing 35000 38000 24000 27000 48000 60000 54000
Total Collection 0 166000 138500 163500 237000 279000 262500 211500
Purchase Of Raw Materials 104500 66000 74250 132000 165000 148500 123750 82500 0
Payment of Raw Materials 104500 66000 74250 132000 165000 148500 123750 82500

Cash Budget

Jan Feb Mar Apr May Jun Jul
Opening Cash Balance $22,000 $22,000 $22,000 $22,000 $22,000 $22,000 $22,000
Receipts:
Collection from Sales $0 $166,000 $138,500 $163,500 $237,000 $279,000 $262,500
Total Receipts $0 $166,000 $138,500 $163,500 $237,000 $279,000 $262,500
Payments:
Payment of Raw Materials $66,000 $74,250 $132,000 $165,000 $148,500 $123,750 $82,500
Rent $9,000 $9,000 $9,000 $9,000 $9,000 $9,000 $9,000
Other Expenditures $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000
Tax Payment $0 $0 $21,000 $0 $0 $21,000 $0
Interest on short term loan $10,556 $10,556 $10,762 $15,347 $15,347 $10,932 $1,500
Repayment of Loan $0 $52,194 $0 $0 $44,152 $94,318 $15,000
Total Payments $105,556 $166,000 $192,762 $209,347 $236,999 $279,000 $128,000
Balance -$83,556 $22,000 -$32,262 -$23,847 $22,000 $22,000 $156,500
Borrowing taken $105,556 $0 $54,262 $45,847 $0 $0 $0
Closing Cash Balance $22,000 $22,000 $22,000 $22,000 $22,000 $22,000 $156,500
Minimum Amount need to Maintain $22,000 $22,000 $22,000 $22,000 $22,000 $22,000 $22,000

b.

No, the firm has not sufficient cash to repay the amount of notes payable amounting $200000. They just have $156500 Cash in Hand.
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Transcribed Image Text

(Cash budget?) The Sharpe? Corporation's projected sales for thefirst 8 months of 2016 are shown in the following? table:January?$190,000May?$300,000February??$120,000June??$270,000March??$135,000July??$225,000April??$240,000August??$150,000Of? Sharpe's sales, 30 percent is for? cash, another 50 percentis collected in the month following the? sales, and 20 percent iscollected in the second month following sales. November andDecember sales for 2015 were $220,000 and $175,000 respectively.Sharpe purchases its raw materials 2 months in advance of itssales. The purchases are equal to 55 percent of the final salesprice of? Sharpe's products. The supplier is paid 1 month after itmakes a delivery. For? example, purchases for April sales are madein? February, and payment is made in March. In? addition, Sharpepays $ 9,000 per month for rent and $20,000 each month for otherexpenditures. Tax prepayments of $21,000 are made each?quarter,beginning in March. The? company's cash balance on December? 31,2015, was $22,000. This is the minimum balance the firm wants tomaintain. Any borrowing that is needed to maintain this minimum ispaid off in the subsequent month if there is sufficient cash.Interest on? short-term loans? (12 percent) is paid monthly.Borrowing to meet estimated monthly cash needs takes place at thebeginning of the month.? Thus, if in the month of April the firmexpects to have a need for an additional? $60,500, these fundswould be borrowed at the beginning of April with interest of? $605(0.12timesĂ—?1/12timesĂ—?$60,500) owed for April and paid at thebeginning of May.a. Prepare a cash budget for Sharpe covering the first 7 monthsof 2016.Fill in the Collections for the month of? January:???(Round tothe nearest? dollar.)NovDecJanFebMarAprMayJuneJulySales?$220,000?$175,000?$190,000?$120,000?$135,000?$240,000?$300,000?$270,000?$225,000?Collections:??Month of sale?(30?%)nothing??First month?(50?%)nothing??Second month?(20?%)nothing?????Total Collections?$nothingb. Sharpe has? $200,000 in notes payable due in July that mustbe repaid or renegotiated for an extension. Will the firm haveample cash to repay the? notes?

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