Account Receivables 50,000
Equipment and Building 100,000
Account Payables 40,000
Notes Payables 10,000
Common Stock 90,000
Retained Earnings $80,000
Account payable pertains to equipment purchased on December 2×14. October 2×14 revenues was $50,000, November 2×14 revenues was $60,000, and December 2×14 was $70,000. Budgeted January 2×15 revenues are projected 20% higher than previous month. Usually 40 % of monthly revenues are collected between 1-30 days, 50 % between 31-60 days and the remaining revenues are collected between 61-90 days. January monthly expenses are expected to be salaries $50,000, rent $4,000, depreciation $3,000 and $2,000 miscellaneous (not include interest nor depreciation expense). Expenses are paid in the month incurred. Equipment purchased on December 2×14, will be paid on next month since purchase. Note payable include a 12% annualized (at year) interest expense payable monthly and principal will be pay on October 2×15. Tax rate is 40%. TAN use a Net Present Value (NPV) instead of Internal Rate of Return (IRR). Some sales pertain to October 2×14 still uncollected at Jan 2×15.
Required: Answer correctly and present full calculation to attain credit for each answer.
1. Prepare the cash budget for Jan 2×15
2. Prepare the budgeted Income Statement for Jan 2×15
3. Prepare the budgeted Balance Sheet for Jan 2X15
4. Indicate the difference between NPV and IRR
January $90,300 May $300,200
February $119,800 June $269,400
March $136,000 July $224,300
April $240,500 August $150,100
Of Sharpe’s sales, 10% is for cash, another 60% is collected in the month following the sale, and 30% is collected in the second month following the sale. November and December sales for 2010 were $219,200 and $174,100, respectively. Sharpe purchases its raw materials two months in advance of its sales equal to 60% of their final sales price. The supplier is paid one month after it makes delivery. For example, purchases for April sales are made in February and payment is made in March. In addition, Sharpe pays $9,200 per month for rent and $20,100 each month for other expenditures. Tax prepayments of $22,400 are made each quarter, beginning in March. The company’s cash balance at December 31, 2010, was $21,800; a minimum balance of $15,000 must be maintained at all times. Assume that any short-term financing needed to maintain the cash balance is paid off in the month following the month of financing if sufficient funds are available. Interest on short-term loans (10 percent) is paid monthly. Borrowing to meet estimated monthly cash needs takes place at the beginning of the month. Thus, if in the month of April the firm expects to have a need for an additional $58,900, these funds would be borrowed at the beginning of April with interest of $491 (i.e., 10% x 1/12 x $58,900) owed for April being paid at the beginning of May.
Prepare a cash budget for Sharpe covering the first seven months of 2011.
Complete (month by month) the cash budget below: (Round to the nearest dollar.)
NOV DEC JAN
Sales $219,200 $174,100 $90,300
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