Transcript Company Is Preparing a Cash Budget for February

question 127

Essay

Transcript Company is preparing a cash budget for February.
• The company has $150,000 cash at the beginning of February and anticipates total sales of $800,000, consisting of 25% cash sales and 75% bank 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.
• Operating expenses are $45,000 per month, of which $25,000 is depreciation expense.Selling expenses (commissions) amount to 4 percent of total sales dollars.
• In addition, a $600,000 note will be due in February for equipment purchased last August.In addition to the principal amount, interest for one month (at 12% per annum) will be paid in February.
• Transcript Company has an agreement with its bank to maintain a minimum cash balance of $100,000.
Required: Prepare in good form a cash budget that shows the amount, if any, that the company must borrow during February.Separate your budget, at a minimum, into the following categories:
Beginning Cash Balance
Operating Cash Flows (Both Inflows and Outflows)
Cash Balance before Financing Effects
Financing Activity
Ending Cash Balance

Evaluate the role of good faith and value in transactions involving negotiable instruments.

Examine the effects of irregularities and deficiencies on the status of HDC and the negotiability of instruments.

Discuss the shelter principle and its impact on the rights and claims of subsequent holders of negotiable instruments.

Analyze specific case scenarios to determine HDC status and the rights of various parties in transactions involving negotiable instruments.

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