Question

The city of Charleston had the following sales of water for the selected months of 2017: Month Sales February $70,000 March 45,000 April 60,000 May 85,000 June 70,000 July 120,000 All sales are on credit. Historically, 40 percent is collected in the month of sale, 20 percent during the first month following the sale, and 40 percent in the second month following the sale. Water purchases by month are as follows: Month February $60,000 March 40,000 April 45,000 May 50,000 June 52,500 July 90,000 Water is purchased in the month of sale. All purchases are paid during the month following the purchase. Operating costs are $25,000 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 at 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 17%. Required: Prepare a cash budget for April, May, June and in for the quarter, and based on your answer complete the following table: Round to the nearest dollar and DO NOT enter decimals, or commas and if a zero needs to be entered, enter "0". April May June Quarter Beginning Cash Balance $ 5,000 $ 10,500 $10,957 $ 5,000 Cash Collections $ $ $ $ Water disbursements $( ) $( ) $( ) $( ) Operating Costs $( ) $( ) $( ) $( ) Borrowings $ $ $ $ Repayments $ $ $ $ Interest $ $ $ $ Ending cash balance $10,500 $ 10,957 $12,957 $ 12,957

Answer 1

1. cash collections

	April	May	June
February collection	28000[70000*40%]
March collection	9000[45000*20%]	18000[45000*40%]
April collection	24000[60000*40%]	12000[60000*20%]	24000[60000*40%]
May collection		34000[85000*40%]	17000[85000*20%]
June collection			28000[70000*40%]
Total collection	61000	64000	69000

2. cash payment

	April	May	Jun
march purchases paid	40000
april purchase paid		45000
may purchases paid			50000

CASH BUDGET

	April	May	June	quarter
beginning cash balance	5000	10500	10957	5000
cash collections	61000	64000	69000	194000[61000+64000+69000]
water disbursements	-40000	-45000	-50000	135000
operating cost	-17000	-17000	-17000	5100
borrowing	1500			1500
repayments		-1500		-1500
interest		43[2000*17%/12*2months]		-43
ending cash balance	10500	10957	12957	12957

operating cost = 25000-8000non cash

=17000$