Dorothy Koehl recently leased space in the Southside Mall and opened a new business, Koehl's Doll Shop. Business has been good, but Koehl frequently runs out of cash. This has necessitated late payment on certain orders, which is beginning to cause a problem with suppliers. Koehl plans to borrow from the bank to have cash ready as needed, but first she needs a forecast of how much she should borrow. Accordingly, she has asked you to prepare a cash budget for the critical period around Christmas, when needs will be especially high. Sales are made on a cash basis only. Koehl's purchases must be paid for during the following month. Koehl pays herself a salary of $4,500 per month, and the rent is $2,600 per month. In addition, she must make a tax payment of $10,000 in December. The current cash on hand (on December 1) is $400, but Koehl has agreed to maintain an average bank balance of $4.500- this is her target cash balance. (Disregard the amount in the cash register, which is insignificant because Koehl keeps only a small amount on hand in order to lessen the chances of robbery.) The estimated sales and purchases for December, January, and February are shown below. Purchases during November amounted to $140,000. Purchases $25,000 25,000 25.000 a. Prepare a cash budget for December, January, and February. Do not round intermediate calculations. Round your answers to the nearest dollar. Negative values, if any, should be indicated by a minus sign. Collections and Purchases! Sales (Collections) Purchases Payments for purchases Salaries Rent Taxes Total payments Cash at start of forecast Net cash flow Cumulative cash balance Target cash balance $ $ $ $ S $ $ $ $ $ S $ December 170,000 25,000 4,500 2,600 10,000 42,100 400 -42,100 -41,700 4500 Ⓡ January $ 46,000 iiiii 25,000✔✔ 4,500 2,600 32,100 www 64,000 174,100 Ⓡ 4,000 S $ S S S February 64,000 25,000 4,500 2,600 31,900 31,900✔✔ 174,100 × 31,900 December January February Sales $170,000 46,000 64,000 Surplus cash or loans needed -900 -3,300 4,300 b. Suppose that Koehl starts selling on a credit basis on December 1, giving customers 30 days to pay. All customers accept these terms, and all other facts in the problem are unchanged. What would the company's loan requirements be at the end of December in this case? (Hint: The calculations required to answer this part are minimal.) Do not round intermediate calculations. Round your answer to the nearest dollar. 46,200

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Dorothy Koehl recently leased space in the Southside Mall and opened a new business, Koehl's Doll Shop. Business has been good, but Koehl frequently runs out of cash. This has necessitated late payment on certain orders, which is beginning to cause a problem with suppliers. Koehl plans to borrow from the bank
to have cash ready as needed, but first she needs a forecast of how much she should borrow. Accordingly, she has asked you to prepare a cash budget for the critical period around Christmas, when needs will be especially high.
Sales are made on a cash basis only. Koehl's purchases must be paid for during the following month. Koehl pays herself a salary of $4,500 per month, and the rent is $2,600 per month. In addition, she must make a tax payment of $10,000 in December. The current cash on hand (on December 1) is $400, but
Koehl has agreed to maintain an average bank balance of $4,500 - this is her target cash balance. (Disregard the amount in the cash register, which is insignificant because Koehl keeps only a small amount on hand in order to lessen the chances of robbery.)
The estimated sales and purchases for December, January, and February are shown below. Purchases during November amounted to $140,000.
Purchases
$25,000
25,000
25,000
a. Prepare a cash budget for December, January, and February. Do not round intermediate calculations. Round your answers to the nearest dollar. Negative values, if any, should be indicated by a minus sign.
Collections and Purchases:
Sales (Collections)
Purchases
Payments for purchases
Salaries
Rent
Taxes
Total payments
Cash at start of forecast
Net cash flow
Cumulative cash balance
Target cash balance
Surplus cash or loans needed
$
$
46,200
$
$
$
$
$
$
$
$
$
$
$
December
170,000
25,000 X
4,500
2,600
10,000
400
×
42,100 X
-41,700
S
4500
~
-42,100 X
✔
×
S
$
$
$
$
$
$
S
$
$
$
January
46,000
25,000
4,500
2,600
---
32,100
64,000
174,100
X
4,000 X
$
$
$
$
$
$
$
$
$
$
February
64,000
25,000
4,500
2,600
31,900
---
31,900
174,100
31,900
December
January
February
-900 X
-3,300
4,300
b. Suppose that Koehl starts selling on a credit basis on December 1, giving customers 30 days to pay. All customers accept these terms, and all other facts in the problem are unchanged. What would the company's loan requirements be at the end of December in this case? (Hint: The calculations required to
answer this part are minimal.) Do not round intermediate calculations. Round your answer to the nearest dollar.
Sales
$170,000
46,000
64.000
Transcribed Image Text:Dorothy Koehl recently leased space in the Southside Mall and opened a new business, Koehl's Doll Shop. Business has been good, but Koehl frequently runs out of cash. This has necessitated late payment on certain orders, which is beginning to cause a problem with suppliers. Koehl plans to borrow from the bank to have cash ready as needed, but first she needs a forecast of how much she should borrow. Accordingly, she has asked you to prepare a cash budget for the critical period around Christmas, when needs will be especially high. Sales are made on a cash basis only. Koehl's purchases must be paid for during the following month. Koehl pays herself a salary of $4,500 per month, and the rent is $2,600 per month. In addition, she must make a tax payment of $10,000 in December. The current cash on hand (on December 1) is $400, but Koehl has agreed to maintain an average bank balance of $4,500 - this is her target cash balance. (Disregard the amount in the cash register, which is insignificant because Koehl keeps only a small amount on hand in order to lessen the chances of robbery.) The estimated sales and purchases for December, January, and February are shown below. Purchases during November amounted to $140,000. Purchases $25,000 25,000 25,000 a. Prepare a cash budget for December, January, and February. Do not round intermediate calculations. Round your answers to the nearest dollar. Negative values, if any, should be indicated by a minus sign. Collections and Purchases: Sales (Collections) Purchases Payments for purchases Salaries Rent Taxes Total payments Cash at start of forecast Net cash flow Cumulative cash balance Target cash balance Surplus cash or loans needed $ $ 46,200 $ $ $ $ $ $ $ $ $ $ $ December 170,000 25,000 X 4,500 2,600 10,000 400 × 42,100 X -41,700 S 4500 ~ -42,100 X ✔ × S $ $ $ $ $ $ S $ $ $ January 46,000 25,000 4,500 2,600 --- 32,100 64,000 174,100 X 4,000 X $ $ $ $ $ $ $ $ $ $ February 64,000 25,000 4,500 2,600 31,900 --- 31,900 174,100 31,900 December January February -900 X -3,300 4,300 b. Suppose that Koehl starts selling on a credit basis on December 1, giving customers 30 days to pay. All customers accept these terms, and all other facts in the problem are unchanged. What would the company's loan requirements be at the end of December in this case? (Hint: The calculations required to answer this part are minimal.) Do not round intermediate calculations. Round your answer to the nearest dollar. Sales $170,000 46,000 64.000
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