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

---

Definitions:

Authentic

Genuine or verified to be original and not a copy or fake.

Negotiable Instrument

A voucher confirming the remittance of a specified financial amount, payable either immediately upon demand or on a scheduled date, with the payer's details included on the document.

Alters

In legal or general context, to change or modify something, such as a document, condition, or situation.

Holder In Due Course

A legal term for an individual or entity that has acquired a negotiable instrument in good faith and for value, and therefore has certain rights above the original payee.