Question

You are provided with the following information taken from Metlock, Inc.’s March 31, 2017, balance sheet.

Cash $ 11,630

Accounts receivable 22,600

Inventory 37,120

Property, plant, and equipment, net of depreciation 122,700

Accounts payable 22,540

Common stock 153,700

Retained earnings 12,390

Additional information concerning Metlock, Inc. is as follows.

1. Gross profit is 27% of sales.

2. Actual and budgeted sales data:

March (actual) $47,000

April (budgeted) 70,800

3. Sales are both cash and credit. Cash collections expected in April are:

March $18,800 (40% of $47,000)

April

42,480

(60% of $70,800)

$61,280

4. Half of a month’s purchases are paid for in the month of purchase and half in the following month. Cash disbursements expected in April are:

Purchases March

$22,540

Purchases April

28,730

$51,270

5. Cash operating costs are anticipated to be $12,510 for the month of April.

6. Equipment costing $2,510 will be purchased for cash in April.

7. The company wishes to maintain a minimum cash balance of $12,570. An open line of credit is available at the bank. All borrowing is done at the beginning of the month, and all repayments are made at the end of the month. The interest rate is 15% per year, and interest expense is accrued at the end of the month and paid in the following month.

Prepare a cash budget for the month of April. Determine how much cash Metlock, Inc. must borrow, or can repay, in April.

Answer 1