Cash Budget Friendly Freddie’s is an independently owned major appliance and electronics discount chain with seven stores located in a Midwestern metropolitan area. Rapid expansion has created the need for careful planning of cash requirements to ensure that the chain is able to replenish stock adequately and meet payment schedules to creditors. Fred Ferguson, founder of the chain, has established a banking relationship that provides a $200,000 line of credit to Friendly Freddie’s. The bank requires that a minimum balance of $8,100 be kept in the chain’s checking account at the end of each month. When the balance goes below $8,100, the bank automatically extends the line of credit in multiples of $1,000 so that the checking account balance is at least $8,100 at month-end. Friendly Freddie’s attempts to borrow as little as possible and repays the loans quickly in multiples of $1,000 plus 2 percent monthly interest on the entire loan balance. Interest payments and any principal payments are paid at the end of the month following the loan. The chain currently has no outstanding loans. The following cash receipts and disbursements data apply to the fourth quarter of the current calendar year. Estimated beginning cash balance $ 9,000 Estimated cash sales:                October   13,940            November   29,310            December   44,270 Sales on account:                July (actual)   129,300            August (actual)   104,100            September (actual)   128,300            October (estimated)   135,700            November (estimated)   142,600            December (estimated)   188,800 Projected cash collection of sales on account is estimated to be 69 percent in the month following the sale, 21 percent in the second month following the sale, and 8 percent in the third month following the sale. The 2 percent beyond the third month following the sale is determined to be uncollectible. In addition, the chain is scheduled to receive $13,400 cash on a note receivable in October. All inventory purchases are made on account as the chain has excellent credit with all vendors because of a strong payment history. The following information regarding inventory purchases is available. Inventory Purchases September (actual) $ 120,900 October (estimated)   111,500 November (estimated)   128,000 December (estimated)   95,000 Cash disbursements for inventory are made in the month following purchase using an average cash discount of 3 percent for timely payment. Monthly cash disbursements for operating expenses during October, November, and December are estimated to be $38,300, $41,400, and $45,700, respectively. Required: Prepare Friendly Freddie’s cash budget for the months of October, November, and December showing all receipts, disbursements, and credit line activity, where applicable. (CMA adapted). Enter all cash disbursements as positive values. If a cash balance is negative, enter the amount as a negative value. If an amount is zero, enter "0". Friendly Freddie's Cash Budget October through December   October November December Beginning cash balance $ $ $ Receipts:       Cash sales       Collections of sales on account       Note receivable repayment       Total cash available $ $ $ Disbursements:       Payment of inventory purchases $ $ $ Operating expenses       Loan repayment       Interest       Total disbursements $ $ $ Cash balance $ $ $ Bank loan       Adjusted cash balance $ $ $

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Chapter1: Financial Statements And Business Decisions
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Cash Budget

Friendly Freddie’s is an independently owned major appliance and electronics discount chain with seven stores located in a Midwestern metropolitan area. Rapid expansion has created the need for careful planning of cash requirements to ensure that the chain is able to replenish stock adequately and meet payment schedules to creditors. Fred Ferguson, founder of the chain, has established a banking relationship that provides a $200,000 line of credit to Friendly Freddie’s. The bank requires that a minimum balance of $8,100 be kept in the chain’s checking account at the end of each month. When the balance goes below $8,100, the bank automatically extends the line of credit in multiples of $1,000 so that the checking account balance is at least $8,100 at month-end.

Friendly Freddie’s attempts to borrow as little as possible and repays the loans quickly in multiples of $1,000 plus 2 percent monthly interest on the entire loan balance. Interest payments and any principal payments are paid at the end of the month following the loan. The chain currently has no outstanding loans.

The following cash receipts and disbursements data apply to the fourth quarter of the current calendar year.

Estimated beginning cash balance $ 9,000
Estimated cash sales:    
           October   13,940
           November   29,310
           December   44,270
Sales on account:    
           July (actual)   129,300
           August (actual)   104,100
           September (actual)   128,300
           October (estimated)   135,700
           November (estimated)   142,600
           December (estimated)   188,800

Projected cash collection of sales on account is estimated to be 69 percent in the month following the sale, 21 percent in the second month following the sale, and 8 percent in the third month following the sale. The 2 percent beyond the third month following the sale is determined to be uncollectible. In addition, the chain is scheduled to receive $13,400 cash on a note receivable in October.

All inventory purchases are made on account as the chain has excellent credit with all vendors because of a strong payment history. The following information regarding inventory purchases is available.

Inventory Purchases
September (actual) $ 120,900
October (estimated)   111,500
November (estimated)   128,000
December (estimated)   95,000

Cash disbursements for inventory are made in the month following purchase using an average cash discount of 3 percent for timely payment. Monthly cash disbursements for operating expenses during October, November, and December are estimated to be $38,300, $41,400, and $45,700, respectively.

Required:

Prepare Friendly Freddie’s cash budget for the months of October, November, and December showing all receipts, disbursements, and credit line activity, where applicable. (CMA adapted). Enter all cash disbursements as positive values. If a cash balance is negative, enter the amount as a negative value. If an amount is zero, enter "0".

Friendly Freddie's
Cash Budget
October through December
  October November December
Beginning cash balance $ $ $
Receipts:      
Cash sales      
Collections of sales on account      
Note receivable repayment      
Total cash available $ $ $
Disbursements:      
Payment of inventory purchases $ $ $
Operating expenses      
Loan repayment      
Interest      
Total disbursements $ $ $
Cash balance $ $ $
Bank loan      
Adjusted cash balance $ $ $
   
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