Question

Leichter Auto​ Parts, a​ family-owned auto parts​ store, began January with $ 10,500 cash. Management forecasts that collections from credit customers will be $ 11,000 in January and $ 15,200 in February. The store is scheduled to receive $ 8,500 cash on a business note receivable in January. Projected cash payments include inventory purchases ​($ 15,600 in January and $ 14,800 in February​) and selling and administrative expenses ​($ 2,900 each​ month).).Leichter Auto​ Parts's bank requires a​ $10,000 minimum balance in the​ store's checking account. At the end of any month when the account balance falls below​ $10,000, the bank automatically extends credit to the store in multiples of​$1,000. Leichter Auto Parts borrows as little as possible and pays back loans in quarterly installments of $2,500​, plus 33​% APR interest on the entire unpaid principal. The first payment occurs three months after the loanprepare Northeast Auto​Parts's cash budget for January and February.

Answer 1

Answer:

                                      Northeast Auto​Parts's

                                           Cash Budget

                                                             January               February

Cash inflows:                                        

• Customers' credits                       $11,000              $15,200
• Business note                              $8,500                            

Total cash inflows                                $19.500              $15,200

Cash outflows:

• Inventory purchases                   ($15,600)            ($14,800)
• selling and adm. expenses        ($2,900)           ($2,900)

Total cash outflows                             ($18,500)            ($17,700)

Monthly cash flow                                 $1,000               ($2,500)

Initial cash balance                               $10,500             $11,500

Ending cash balance                            $11,500              $9,000

Required bank loan                                      $0             $1,000

Total                                                       $11,500             $10,000

Explanation:

January 1, beginning cash $10,500

cash collections from customers' credits:

• January $11,000
• February $15,200
• also a business note for $8,500 in January

estimated cash outflows:

• January $15,600
• February $14,800
• S&A expenses $2,900 each month

Bank's minimum balance $10,000

loans in multiples of $1,000