21. ABC Plastics is ready to begin the first quarter in which peak sales occur. The company has requested a $100,000, line of credit at 12% (annual interest rate; 1% per month) loan from its bank to help meet cash requirements in the following months. In order to receive the funds the bank has requested the company prepare a cash budget. In response to this request the following data has been pulled together.

a) Actual sales for the last two months, November and December and budgeted sales for January, February, and March are as follows (all sales are on account):

Units Selling Price

November (actual) 9,500 $20

December (actual) 7,500 $20

January (budgeted) 10,000 $19

February (budgeted) 11,000 $21

March (budgeted) 12,000 $25

B) Past experience shows that 50% of a months sales are collected in the month of sale, 40% in the month following the sale and 10% in the second month following the sale. The accounts receivable balance at December 31^st will be collected based on the above pattern. The balance is made up of $19,000 from November and $75,000 from December.

Budgeted purchases and budgeted expenses for the first quarter are below.

January February March

Merchandise purchases $85,000 $87,500 $95,000

Salaries and wages $45,000 $45,000 $60,000

Advertising $40,000 $45,000 $40,000

Rent payments $10,000 $10,000 $10,000

Equipment Purchase $0 $0 $30,000

Depreciation $20,000 $20,000 $20,000

Merchandise purchases are paid in 50% in the month of purchase and 50% during the month following purchase. Accounts payable for purchases in December will be paid in January.

c) The balance sheet for December 31^st, 2019 is as follows:

Assets

Cash $40,000

Accounts Receivable $94,000

Inventory $120,000

Plant and Equipment (net of depreciation) $180,000

Total Assets $434,000

Liabilities and Shareholders Equity

Accounts Payable (all related to merchandise purchases) $50,000

Common Stock $100,000

Retained Earnings $284,000

Total Liabilities and Shareholders Equity $434,000

The company will pay a cash dividend of $5,000 in February.

Assume the company requires a minimum cash balance of $50,000 at the end of each month. If possible the loan will be paid back on March 31^st with interest.

Prepare a schedule of expected cash collections for January, February, and March. (3 Points)

Prepare a cash budget for the months of January, February, and March. (5 Points)

Please compute the ending accounts receivable and accounts payable balance as of March 31^st. (2 Points)