Question

Harry’s Carryout Stores has eight locations. The firm wishes to expand by two more stores and needs a bank loan to do this. Mr. Wilson, the banker, will finance construction if the firm can present an acceptable three-month financial plan for January through March. The following are actual and forecasted sales figures:

    

Actual			Forecast			Additional Information
November	$320,000		January	$400,000		April forecast	$400,000
December	340,000		February	440,000
			March	410,000

Of the firm’s sales, 60 percent are for cash and the remaining 40 percent are on credit. Of credit sales, 20 percent are paid in the month after sale and 80 percent are paid in the second month after the sale. Materials cost 20 percent of sales and are purchased and received each month in an amount sufficient to cover the following month’s expected sales. Materials are paid for in the month after they are received. Labor expense is 50 percent of sales and is paid for in the month of sales. Selling and administrative expense is 15 percent of sales and is also paid in the month of sales. Overhead expense is $31,000 in cash per month.
  
Depreciation expense is $10,600 per month. Taxes of $8,600 will be paid in January, and dividends of $5,000 will be paid in March. Cash at the beginning of January is $92,000, and the minimum desired cash balance is $87,000.

a. Prepare a schedule of monthly cash receipts for January, February, and March.
  

  

b. Prepare a schedule of monthly cash payments for January, February, and March.
  

c. Prepare a monthly cash budget with borrowings and repayments for January, February, and March. (Negative amounts should be indicated by a minus sign. Assume the January beginning loan balance is $0.)

  

rev: 09_28_2016_QC_CS-61974

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WorksheetDifficulty: AdvancedLearning Objective: 04-02 The three financial statements for forecasting are the pro forma income statement, the cash budget, and the pro forma balance sheet.

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Answer 1

Harry's Carryout Stores Cash Receipts Schedule November December Janua Februa March Sales 320000 340000 400000 440000 410000 Credit Sales 128000 136000 160000 176000 164000 Cash Sales 240000 264000 246000 One month after sale 27200 32000 35200 Two months after sale 102400 108800 128000 Total cash receipt 369600 409200 404800 Harry's Carryout Stores Cash Payments Schedule March Februa anua Payments for purchases Labor expense 68000 80000 88000 200000 220000 205000 Selling and administrative 61500 60000 66000 Overhead 31000 31000 31000 Taxes 8600 Dividends 5000 367600 Total cash payments 397000 390500 Harry's Carryout Stores Cash Budget March Februa anua Total cash receipts Total cash payments 409200 369600 404800 367600 397000 390500 Net cash flow 2000 7800 18700 Beginning cash balance 92000 94000 101800 Cumulative cash balance 94000 101800 120500 Monthly loan (or repayment) Ending cash balance 0 0 0 120500 94000 101800 Cumulative loan balance 0 0 0