Question

Leichter Auto​ Parts, a​ family-owned auto parts​ store, began January with $ 10,500 cash. Management forecasts that collections from credit customers will be $ 11,000 in January and $ 15,200 in February. The store is scheduled to receive $ 8,500 cash on a business note receivable in January. Projected cash payments include inventory purchases ​($ 15,600 in January and $ 14,800 in February​) and selling and administrative expenses ​($ 2,900 each​ month).).Leichter 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. Leichter 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 loanprepare Northeast Auto​Parts's cash budget for January and February.

Answer 1

Northeast Auto​Parts's

Cash Budget

January February

Cash inflows:

• Customers' credits $11,000 $15,200
• Business note $8,500

Total cash inflows $19.500 $15,200

Cash outflows:

• Inventory purchases ($15,600) ($14,800)
• selling and adm. expenses ($2,900) ($2,900)

Total cash outflows ($18,500) ($17,700)

Monthly cash flow $1,000 ($2,500)

Initial cash balance $10,500 $11,500

Ending cash balance $11,500 $9,000

Required bank loan $0 $1,000

Total $11,500 $10,000

Step-by-step explanation:

January 1, beginning cash $10,500

cash collections from customers' credits:

• January $11,000
• February $15,200
• also a business note for $8,500 in January

estimated cash outflows:

• January $15,600
• February $14,800
• S&A expenses $2,900 each month

Bank's minimum balance $10,000

loans in multiples of $1,000