Question

1. The city of Charleston had the following sales of water for the selected months of 2017 Month February March April May June July Sales $50,000 45,000 60,000 42,500 70,000 120,000 All sales are on credit. Historically, 50 percent is collected in the month of sale, 35 percent during the first month following the sale, and 15 percent in the second month following the sale. Water purchases by month are as follows Month February March April May June July $37,500 33,750 45,000 31,875 52,500 Water is purchased in the month of sale. All purchases are paid during the month following the purchase. Operating costs are $18,000 and everything is paid in cash except for depreciation, which totals $8,000 a month The city plans on purchasing some new equipment in May for $25,000 in exchange for a note payable. The April 1 cash balance is expected to be $5,000 The city must maintain a minimum cash balance of $10,500, and money can be borrowed from a local bank in increments of $1,000. The city borrows money ant the beginning on the first day of the month and repays loans and interest on the last day of the month. The bank charges the city an annual interest rate of 15%

Answer 1

cash collections for sales
			February	March	April	May	June	July
Sales			$50,000	$45,000	$60,000	$42,500	$70,000	$120,000
50% collected in same month			$25,000	$22,500	$30,000	$21,250	$35,000	$60,000
			(50000*50%)	(45000*50%)	(60000*50%)	(42500*50%)	(70000*50%)	120000*50%)
35% collected in following month				$17,500	$15,750	$21,000	$14,875	$24,500
				(50000*35%)	(45000*35%)	(60000*35%)	(42500*35%)	(70000*35%)
15% collected in second month					$7,500	$6,750	$9,000	$6,375
					(50000*15%)	(45000*15%)	(60000*15%)	(42500*15%)
Total Sales collection in Cash					$53,250	$49,000	$58,875	$90,875
	April		May		June		Quarter
Beginning Cash Balance	$5,000		$14,500		$10,500		$5,000
Cash collections	$53,250		$49,000		$58,875		$161,125
Less: Water Disbursements	$33,750		$45,000		$31,875		$110,625
Less: Operating Costs	$10,000		$10,000		$10,000		$30,000
Add :Borrowing	0		$2,000				$2,000
Less : Repayments	0		0		$2,000		$2,000
Less: Interest	0		0		50		$50
Ending cash Balance	$14,500		$10,500		$25,450		$25,450
	(5000+53250-33750-10000)
Borrowing
Shortfall	$ 14500+$49000-$45000-$ 10000
	8500
Minimum Balance	$10,500
Borrowing in May	$ 10500-$ 8500		$2,000
Interest paid in June		$ 2000* 15%*2/12
		$50