Reference no: EM133090476
Question - Harrison Printing has projected its sales for the first eight months of 2019 as follows:
January $100,000
February $120,000
March $150,000
April $300,000
May $275,000
June $200,000
July $200,000
August $180,000
Harrison collects 20% of its sales in the month of sale, 50% in the month following the sale, and the remaining 30% two months following the sale. During November and December of 2018, Harrison's sales were $220,000 and $175, 000 respectively.
Harrison purchases raw materials two months in advance of its sales equal 65% of its final sales price. The supplier is paid one month after delivery. Thus, purchase for April Sales are made in February and payment in March.
In addition, Harrison pays $10,000 per month for rent and $20,000 each month for other expenditures. Tax prepayments 0f $22,500 are made each quarter beginning in March. The company's cash balance of $20,000 must be maintained at all times to satisfy the firm's bank of line credit agreement. Harrison has arranged with its bank for short-term credit at an interest of 12% per annum or 1% per month to be paid monthly. Borrowing to meet estimated monthly needs takes place at the end of each month and interest is not paid until the following month. Finally, Harrison follows a policy of repaying its outstanding short-term debt in any month in which the cash balance exceeds the desired balance of $20,000.
Required -
1. Prepare a six-month cash balance for Harrison and use it to evaluate the firm's cash need.
2. Harrison has $200,000 note due in June, Will the firm have sufficient cash to repay this loan.? Give reason for your answer.