Reference no: EM132460252

You are a relatively recent hire to Hartz & Co., a local manufacturer of plumbing supply products. You have been asked to prepare, for a presentation to the company's management, a condensed cash flow statement for the months of November and December 2016.

• Assume the cash balance at November 1 will be $75,000. It is the company's policy to maintain a minimum cash balance of $50,000 at the end of each month. Cash receipts (from cash sales and collection of accounts receivable) are projected to be $525,000 for November and $450,000 for December. Cash disbursements (sales commissions, advertising, delivery expense, wages, utilities, etc.) prior to financing activity are scheduled to be $450,500 in November and $550,000 in December.

• Short-term borrowing, when needed, is done at the beginning of the month in increments of $1,000. The annual interest rate on any such loans is estimated to be 12%. Interest on any short-term loans is paid in cash at the end of the month. Repayments of principal (if any) are assumed to occur at the end of the month. As of November 1, the company has a $50,000 long-term loan from the local bank. This loan, including interest (at 12% per year) for the month of November, is payable at the end of November.

Required:

Question 1: What is the cash budget for November and December?

 

Hartz & Co.
Cash Budget
For November and December, 2016
Cash balance, beginning	November	December $       99,000 Q
	$       75,000 0
Add: Cash receipts                                    0	525,000 0	450,000 0
Total cash available	600,000	549,000
Cash disbursements, prior to financing	450,500 Q	550,000 0
Add: Minimum cash balance                             0	144,500 Q
Total cash needed	595,000	550,000
Excess (deficiency of) cash, before financing effects
Financing:
Short-term borrowing, beginning of month	op	52,000 0
Repayments (long-term loan principal), end of month	(50,000) 0	op
Cash interest, end of month	(500) 0	(520) Q
Total effects of financing	(50,500)	51,480
Ending cash balance	$          99,000	$         50,480