E22-34 (similar to)
Lipman 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 $14,900 in February. The store is scheduled to receive $6,000 cash on a business note receivable in January. Projected cash payments include inventory purchases ($13,200 in January and $13,500 in February) and selling and administrative expenses ($3,200 each month).
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Lipman Auto Parts
Cash Budget
January and February
Beginning cash balance
Cash receipts from customers
Cash receipt on note receivable
Cash available
Cash payments:
Purchases of inventory
Selling and administrative expenses
Total cash payments
Ending cash balance before financing
Less: Minimum cash balance desired
Projected cash excess (deficiency)
Total effects of financing
Ending cash balance
January
February
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1 part
remaining
More Info
Lipman 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. Lipman Auto Parts borrows as little as possible and pays back loans in quarterly installments of $2,000, plus 4% APR interest on the entire unpaid principal. The first payment occurs three months after the loan.
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Requirements
1. Prepare Lipman Auto Parts's cash budget for January and February.
2. How much cash will Lipman Auto Parts borrow in February if collections from customers that month total $13,900 instead of $14,900?
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Final Check
