Problem:
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 account. 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.
Required:
Question 1: Prepare Davis Consulting's cash budget for January and February 2013.
Question 2: How much cash will Davis borrow in February if cash receipts from customers that month total $21,500 instead of $51,500?
Note: Please provide full description.