The Sharpe Corporation’s projected sales

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Description

1.(Cash budget) The Sharpe Corporation’s projected sales for the first eight months of 2011 are as follows:
Of Sharpe’s sales, 10 percent is for cash, another 60 percent is collected in the month following sale, and 30 percent is collected in the second month following sale. November and December sales for 2010 were $219,600 and $174,700, 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 $9,800 per month for rent and $19,500 each month for other expenditures. Tax prepayments of $21,900 are made each quarter, beginning in March. The company’s cash balance at December 31, 2010, was $22,300; 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 (12 percent) is paid monthly. Borrowing to meet estimated monthly cash needs takes place at the beginning of the month. Thus, if in the month of April the firm expects to have a need for an additional $57,560, these funds would be borrowed at the beginning of April with interest of $576 (i.e., 12%x1/12×57,860) owed for April and paid at the beginning of May.
a. Prepare a cash budget for Sharpe covering the first seven months of 2011.
b. Sharpe has $199,100 in notes payable due in July that must be repaid or renegotiated for an extension. Will the firm have ample cash to repay the notes?
No/Yes, the company will not/will have enough money to pay the debt.

January 90,700
February 119,500
March 135,000
April 240,900
May 300,700
June 269,900
July 225,500
August 150,500

November December January
Sales $219,600 $174,700
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
Net change in cash for period
(+) Beginning cash balance
(-) Interest on short-term borrowing
(-) Short-term borrowing repayments___________________________
(=) Ending cash balance b/ borrowing

New Financing Needed
Financing needed for period
Ending cash balance $22,300
Cumulative borrowing

2.(Cash budget) The Sharpe Corporation’s projected sales for the first eight months of 2011 are as follows:
Of Sharpe’s sales, 10 percent is for cash, another 60 percent is collected in the month following sale, and 30 percent is collected in the second month following sale. November and December sales for 2010 were $219,300 and $174,200, 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 $10,700 per month for rent and $19,400 each month for other expenditures. Tax prepayments of $22,200 are made each quarter, beginning in March. The company’s cash balance at December 31, 2010, was $22,300; 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 (12 percent) is paid monthly. Borrowing to meet estimated monthly cash needs takes place at the beginning of the month. Thus, if in the month of April the firm expects to have a need for an additional $60,650, these funds would be borrowed at the beginning of April with interest of $607 (i.e., 12%x1/12x$60,650) owed for April and paid at the beginning of May.
a. Prepare a cash budget for Sharpe covering the first seven months of 2011.

b. Sharpe has $199,600 in notes payable due in July that must be repaid or renegotiated for an extension. Will the firm have ample cash to repay the notes?
No/Yes, the company will not/will have enough money to pay the debt.

January 90,200
February 120,700
March 134,500
April 240,900
May 299,000
June 269,800
July 224,200
August 150,900

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