Ling Auto Parts, a family-owned auto parts store, began January with $10,200 cash. Management forecasts that collections
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Ling Auto Parts’ bank requires a $10,000 minimum balance in the store’s checking account. At the end of any month when the account balance dips below $10,000, the bank automatically extends credit to the store in multiples of $1,000. Ling Auto Parts borrows as little as possible and pays back loans in quarterly installments of $2,500, plus 5% interest on the entire unpaid principal. The first payment occurs three months after the loan. (Note: We recommend you use the Excel work papers provided at myaccountinglab.com.)
Requirements
1. Prepare Ling Auto Parts’ cash budget for January and February.
2. How much cash will Ling Auto Parts borrow in February if collections from customers that month total $14,000 instead of $15,000?
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...
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Related Book For
Financial and Managerial Accounting
ISBN: 978-0132497978
3rd Edition
Authors: Horngren, Harrison, Oliver
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