Question

Zap Power, a family-owned battery store, began October with $11,200 cash.

Management forecasts that collections from credit customers will be $11,400 in October and $14.600 in November. The store is scheduled to receive $7,000 cash on a business note receivable in October. Projected cash payments include inventory purchases ($13,900 in October and $14,500 in November) and operating expenses ($3,200 each month). 

Zap Power's bank requires a $10,000 minimum balance in the store's chequing account. At the end of any month when the account balance dips below $10,000, the bank automatically extends credit to the store in multiples of $1,000. Zap Power borrows as little as possible and pays back loans in quarterly installments of $2,000 plus 4% interest on the entire unpaid principal. The first payment occurs 3 months after the loan.

Requirement

 1. Prepare Zap Power's cash budget for October and November.

 Prepare the cash budget beginning with October. (For amounts with a zero balance, make sure to enter "0" in the appropriate cell. Use parentheses or a minus sign when entering any deficiency.) 

Answer 1

Zap Power				Calculation
Cash Budget	October	November		October	November
Beginning Cash balance	11,200	12,500
Cash collections from customers	11,400	14,600
Collection of note receivable	7,000	-
Cash Available before Financing	29,600	27,100
Cash Payments
Purchases of Inventory	13,900	14,500
Operating expenses	3,200	3,200
Ending Cash balance before Financing	12,500	9,400
Minimum Cash balance desired	10,000	10,000
Cash excess (deficiency)	2,500	(600)
Total effect of financing	-	1,000		Round $600 to $1,000 for borrowings
Ending Cash balance after Financing	12,500	10,400