You are provided with the following information taken from Washburne Inc.’s March 31, 2012, balance sheet.
Cash ……………………………….…………..…… $ 11,000
Accounts receivable ……………….…………………. 20,000
Inventory ………………………….………………….. 36,000
Property, plant, and equipment, net of depreciation … 120,000
Accounts payable ……………………………………... 22,400
Common stock ……………………………………….. 150,000
Retained earnings ……………………………………… 11,600
Additional information concerning Washburne Inc. is as follows.
1. Gross profit is 25% of sales.
2. Actual and budgeted sales data:
March (actual) …… $46,000
April (budgeted) …… 70,000
3. Sales are both cash and credit. Cash collections expected in April are:
March …………. $18,400 (40% of $46,000)
April ……………. 42,000 (60% of $70,000)
$60,400
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 …… $22,400
Purchases April ……… 28,100
$50,500
5. Cash operating costs are anticipated to be $11,200 for the month of April.
6. Equipment costing $2,500 will be purchased for cash in April.
7. The company wishes to maintain a minimum cash balance of $9,000. 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 12% per year, and interest expense is accrued at the end of the month and paid in the following month.
Instructions
Prepare a cash budget for the month of April. Determine how much cash Washburne Inc. must borrow, or can repay, in April.