Reference no: EM133077076

Question - The Sunland Company is in a seasonal business and prepares quarterly budgets. Its fiscal year runs from January 1 through December 31. Production occurs only in the first quarter (January to March), but sales take place throughout the year. The sales forecast for the coming year shows the following:

There are no cash sales, and the beginning balance of receivables is expected to be collected in the first quarter. Subsequent collections are two-thirds in the quarter when sales take place and one-third in the following quarter.

The company makes materials purchases valued at $400,000 in the first quarter, but makes no purchases in the last three quarters. It makes payment when it purchases the materials.

Direct labour of $351,000 is incurred and paid only in the first quarter. Factory overhead of $343,000 is also incurred and paid in the first quarter, and is at a standby level of $99,000 during the other three quarters. Selling and administrative expenses of $35,000 are paid each quarter throughout the year. Sunland has an operating line of credit with its bank at an interest rate of 5% per annum. The company plans to keep a cash balance of at least $10,000 at all times, and it will borrow and repay in multiples of $5,000. It makes all borrowings at the beginning of a quarter, and makes all payments at the end of a quarter. It pays interest only on the portion of the loan that it repays in a quarter.

The company plans to purchase equipment in the second and fourth quarters for $70,000 and $149,000, respectively. The cash balance on January 1 is $24,000 and accounts receivable total $151,000.

Prepare a cash budget for the year. Show receipts, disbursements, the ending cash balance before borrowing, the amounts borrowed and repaid, interest payments, and the ending cash balance.