Reference no: EM132997872

Question - V - Olde Corporation is preparing a cash budget for the first two months of the coming year. The following data have been forecasted:

January February

Sales P750,000 P800,000

Purchases 450,000 480,000

Operating expenses:

Payroll 146,800 167,400

Advertising 52,700 62,800

Rent 8,750 8,750

Depreciation 23,750 23,750

End-of-January balances:

Cash 120,000

Bank loan 480,000

Additional data:

Sales are 40% cash and 60% credit. The term of credit sales is 2/10, n/30. The collection pattern for credit sales is 80% in the month following the month of sale (of which 75% are collected within 10 days), and 20% in the month thereafter. Total sales in December of the prior year were P1,000,000.

Purchases are all on credit, with 40% paid in the month of purchase and the balance the following month.

Operating expenses are paid in the month incurred.

The firm desires to maintain a minimum cash balance of P150,000 at the end of each month.

Loans are used to maintain the minimum cash balance. At the end of each month, interest of 1% per month is paid on the outstanding loan balance as of the beginning of the month. Repayments are made (at the end of the month) whenever the cash balance exceeds P150,000.

Required - Show solutions in good form - Prepare the cash budget, in the form of a statement of cash flow, for February. What is the amount of the loan balance at the end of the month (after loan repayments, if any)?