This problem continues the Davis Consulting, Inc. situation from Problem P20- 63 of Chapter 20. Assume Davis

Question:

This problem continues the Davis Consulting, Inc. situation from Problem P20- 63 of Chapter 20. Assume Davis Consulting began January with $ 29,000 cash. Management forecasts that cash receipts from credit customers will be $ 49,000 in January and $ 51,500 in February. Projected cash payments include equipment purchases ($ 17,000 in January and $ 40,000 in February) and selling and administrative expenses ($ 6,000 each month). Davis’s bank requires a $ 20,000 minimum balance in the firm’s checking ac-count. At the end of any month when the account balance falls below $ 20,000, the bank automatically extends credit to the firm in multiples of $ 5,000. Davis borrows as little as possible and pays back loans each month in $ 1,000 increments, plus 5% interest on the entire unpaid principal. The first payment occurs one month after the loan.


Requirements

1. Prepare Davis Consulting’s cash budget for January and February 2016.

2. How much cash will Davis borrow in February if cash receipts from customers that month total $ 21,500 instead of $ 51,500?


Cash Budget
A cash budget is an estimation of the cash flows for a business over a specific period of time. These cash inflows and outflows include revenues collected, expenses paid, and loans receipts and payment.  Its primary purpose is to provide the...
Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Horngrens Financial and Managerial Accounting

ISBN: 978-0133255584

4th Edition

Authors: Tracie L. Nobles, Brenda L. Mattison, Ella Mae Matsumura

Question Posted: