The Sharpe? Corporation's projected sales for the first 8 months of 2014 are shown in the following? table:
January ?$210,000 May ?$320,000 ? ?
February 140,000 June 290,000
March 155,000 July 245,000
April 260,000 August 170,000
Of? Sharpe's sales, 10 percent is for? cash, another 50 percent is collected in the month following the? sales, and 40 percent is collected in the second month following sales. November and December sales for 2013 were ?$240,000 and ?$195,000?, respectively. Sharpe purchases its raw materials 2 months in advance of its sales. The purchases are equal to 55 percent of the final sales price of? Sharpe's products. The supplier is paid 1 month after it makes a delivery. For? example, purchases for April sales are made in? February, and payment is made in March. In? addition, Sharpe pays $8,000 per month for rent and $20,000 each month for other expenditures. Tax prepayments of ?$20,000 are made each? quarter, beginning in March. The? company's cash balance on December? 31, 2013, was ?$25,000. This is the minimum balance the firm wants to maintain. Any borrowing that is needed to maintain this minimum is paid off in the subsequent month if there is sufficient cash. Interest on? short-term loans? (12 percent) is paid monthly. Borrowing to meet estimated monthly cash needs takes place at the beginning of the month. ? Thus, if in the month of April the firm expects to have a need for an additional? $60,500, these funds would be borrowed at the beginning of April with interest of? $605 ?(0.12times ×?1/12times ×?$60,500) owed for April and paid at the beginning of May.
a. Prepare a cash budget for Sharpe covering the first 7 months of 2014.
b. Sharpe has? $200,000 in notes payable due in July that must be repaid or renegotiated for an extension. Will the firm have ample cash to repay the? notes?