Reference no: EM132742144
Question: Golden State Company has applied at a local bank for a short-term loan of $150,000 starting on October 1, 2019. The bank's loan officer has requested a cash budget from the company for the quarter ending December 31, 2019. The following information is needed to prepare the cash budget:
Sales: $600,000
Purchases: 350,000
Salaries and wages to be paid: 125,000
Rent payments: 7,000
Supplies (payments for): 4,500
Insurance payments: 1,500
Other cash payments: 22,000
A cash balance of $24,000 is planned for October 1 (beginning of quarter). Accounts receivable are expected to be $48,000 on October 1. All of these accounts will be collected in the quarter ending December 31. In general, Sales are collected as follows: 90% in the quarter of the sale and 10% in the quarter after the sale.
Accounts Payable are planned to be $480,000 at October 1 and will be paid during the quarter ended December 31. All purchases are paid for in the quarter after the purchase.
a. How to prepare a cash budget for the quarter ending December 31, 2019. Assume that the $150,000 loan will be made on October 1 and will be repaid with interest at 10% on December 31.
(Use the format for the Cash Budget in the comprehensive example posted to Canvas. Don't forget the include the loan proceeds and the interest.)
b. If the company desires a minimum cash balance of $18,000, will the company be able to repay the loan as planned on December 31?
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How to prepare a cash budget for the quarter
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