ACCT 556 RANK Learn by Doing/acct556rank.com ACCT 556 RANK Learn by Doing/acct556rank.com | Page 6

12% of the sales are collected in the 2nd month following the sale.
5% of the sales are collected in the 3rd month following the sale.
The following information regarding costs is available:
The cost of goods sold is 54% of sales
Items for sale are purchased in the month of the sale.
80% of accounts payable are paid in the month following when the
cost is incurred.
20% of accounts payable are paid in the 2nd month following when
the cost is incurred.
Wages are 28% of sales and are paid currently
Annual general and administrative costs are $1,411,200 and are
incurred evenly throughout the year.
Annual property taxes are $14,000 and are paid semi annually in June
and October.
A $10,000 cash capital purchase will be made in April.
The beginning cash balance in April is expected to be $47,000. The
Hale Company has a policy of maintaining a minimum cash balance
of $45,000. The company has an arrangement with a local bank for a
line of credit that carries a 10% annual interest rate. If the ending
monthly balance falls below $45,000, the company will borrow against
the line of credit so that the minimum balance can be maintained. If
the company has borrowed against the line of credit and a cash
balance is expected to be above $45,000 at the end of a particular
month, then repayments will be made bringing the cash balance down
to $45,000. Interest on the line of credit is paid monthly. Assume that
all line of credit transactions occur on the last day of the month.
Required:
Prepare a cash budget for the Hale Company for the 2nd quarter of
the year. Include April, May, June, and a quarter total in your budget.
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ACCT 556 Week 6 Homework Problem