Reference no: EM132596598

The Mckenzie Company is preparing its cash budget for the months of April and May. The firm has established a $250,000 line of credit with its bank at a 12% annual rate of interest on which borrowings for cash deficits must be made in $1,000 increments. There is no outstanding balance on the line of credit loan on March 1 and beginning cash balance is $90,000. Principle repayments are to be made in any month in which there is a surplus of cash. Interest is to be paid monthly. Mckenzie intends to maintain a minimum balance of $90,000 at the end of each month by either borrowing for deficits below the minimum balance or repaying the loan balance with excess cash. Expected monthly collection and disbursement patterns are shown below:

Collections: 70% of the current month's sales budget and 30% of the previous month's sales budget.

Accounts Payable Disbursements: 25% of the current month's accounts payable budget and 75% of the previous month's accounts payable budget.

All other disbursements occur in the month in which they are budgeted

Budget Information                  February                  March                  April               May

Sales                                  $ 110,000                 $ 100,000        $ 75,000        $ 100,000

Accounts Payable                   $ 20,000                  $ 30,000          $ 40,000          $ 40,000

Payroll                                    $ 70,000                 $ 60,000           $ 55,000      $ 50,000

Other Disbursements                $ 25,000                  $ 25,000           $ 20,000              $ 10,000

Question 1: Generate a Cash Budget for March, April and May