Question

Transcript Company is preparing a cash budget for February. The company has $150,000 cash at the beginning of February and anticipates having total sales of $800,000, consisting of 25 % cash sales and 75 % credit card sales. The bank charges 3 percent for credit card deposits. The firm sets its selling price at 160 percent of the cost of purchases and pays the cost of each month's sales at the end of the month. Other cash disbursements are $20,000 per month amd 4 percent of the total sales. In addition, a $600,000 note will be due in February for equipment purchased last August. Transcript Company has an agreement with its bank to maintain a cash balance of $100,000. What amount, if any, must the company borrow during February?

Answer 1

Answer:

The company should borrow $320,000 during february.

Explanation:

Cash Sales = 25%*$800,000

                   = $200,000

Credit Card Sales = 75%*$800,000

                              = $600,000

Bank Charges = 3%*$600,000

                        = $18,000

Selling price = 160% of Cost of purchases

Cost of purchases = Selling price/160%

                              = $800,000/160%

                              = $500,000

4% of Sales = 4%*$800,000

                    = $32,000

Particulars                                           Amount        Amount

Opening cash                                                  150000

Add: Cash Sales                                   200000  

Add: Card Sales                                   600000  

Less: Card Charges                             18000  

Less: Purchases                                    (500000)  

Less: other disbursements                     (20000)  

Less: Other disbursements 2             (32000)  

Less: Note Due                                    (600000)  

Less: Closing balance                             (100000)   -470000

Borrowing                                                                    320000

Therefore, The company should borrow $320,000 during february.