Question

Northeast Auto​ Parts, a​family-owned auto parts​ store, began January with $10,600 cash. Management forecasts that collections from credit customers will be $11,300 in January and $14,700 in February.The store is scheduled to receive $6,500 cash on a business note receivable in January. Projected cash payments include inventory purchases ​($14,400 in January and $12,200 in February) and selling and administrative expenses​($3,500 each​ month). Northeast Auto​ Parts's bank requires a​ $10,000 minimum balance in the​ store's checking account. At the end of any month when the account balance falls below​ $10,000, the bank automatically extends credit to the store in multiples of​$1,000. Northeast Auto Parts borrows as little as possible and pays back loans in quarterly installments of $2,500​, plus 33​% APR interest on the entire unpaid principal. The first payment occurs three months after the loan.1. Pleaseprepare Northeast Auto​Parts's cash budget for January and February.

2. How much cash will Northeast Auto Parts borrow in February if collections from customers that month total $13,700 instead of $14,700​?

Answer 1

Part 1. $500 required

Part 2. $1,500 required

Step-by-step explanation:

Part 1.

Northern Auto Parts

Cash Budget

Cash Receipts:

January February

Beginning cash balance 10600 10500

Cash receipts from customers 11300 14700

Cash receipt on note receivable 6500 0

Cash available 28400 25200

Cash payments:

Purchases of inventory 14400 12200

Selling and administrative expenses 3500 3500

Total cash payments 17900 15700

Now

$ $

Cash Receipts: 28400 25200

Cash payments: 17900 15700

Ending cash balance before financing 10500 9500

Less: Ending cash balance Required 10000 10000

Projected cash excess 500 -500

Total effects of financing 0 500

Ending cash balance 10500 10,000

Part 2.

Cash Receipts:

January February

Beginning cash balance 10600 10500

Cash receipts from customers 11300 13700

Cash receipt on note receivable 6500 0

Cash available 28400 24200

Cash payments:

Purchases of inventory 14400 12200

Selling and administrative expenses 3500 3500

Total cash payments 17900 15700

Now

$ $

Cash Receipts: 28400 24200

Cash payments: 17900 15700

Ending cash balance before financing 10500 8500

Less: Ending cash balance Required 10000 10000

Projected cash excess 500 -1500

Total effects of financing 0 1500

Ending cash balance 10500 10,000

The company will have to borrow $1,500 in the month February.