Question

 Northern Auto Parts, a family-owned auto parts store, began January with $10,300 cash. Management forecasts that collections from credit customers will be $11,900 in January and $15,300 in February. The store is scheduled to receive $4,000 cash on a business note receivable in January. Projected cash payments include inventory purchases ($11,200 in January and $13,600 in February) and selling and administrative expenses ($3,500 each month).

 Northern Auto Parts's bank requires a $10,000 minimum balance in the store's checking account. At the end of any month when the account balance falls below $10,000, the bank automatically extends credit to the store in multiples of $1,000. Northern Auto Parts borrows as little as possible and pays back loans in quarterly installments of $2,000, plus 4% APR interest on the entire unpaid principal. The first payment occurs three months after the loan.

 Requirements

 1. Prepare Northern Auto Parts's cash budget for January and February.

 2. How much cash will Northern Auto Parts borrow in February if collections from customers that month total $14,300 instead of $15,300?

Answer 1

1	Northern Auto Parts
	Cash Budget
	January and February
		January		February
	Beginning cash balance	$10,300		$11,500
	Cash receipts from customers	$11,900		$15,300
	Cash receipts on note receivable	$4,000		-
	Cash available	$26,200		$26,800
	Cash payments:
	Purchase of inventory	$11,200		$13,600
	Selling and administrative expenses	$3,500		$3,500
	Total cash payments	$14,700		$17,100
	Ending cash balance before financing	$11,500		$9,700
	Less: Minimum cash balance desired	$10,000		$10,000
	Projected cash excess (deficiency)	$1,500		-$300
	Total effects of financing	$0		$1,000
	Ending cash balance	$11,500		$10,700
2	Northern Auto Parts
	Cash Budget
	January and February
		January		February
	Beginning cash balance	$10,300		$11,500
	Cash receipts from customers	$11,900		$14,300
	Cash receipts on note receivable	$4,000		-
	Cash available	$26,200		$25,800
	Cash payments:
	Purchase of inventory	$11,200		$13,600
	Selling and administrative expenses	$3,500		$3,500
	Total cash payments	$14,700		$17,100
	Ending cash balance before financing	$11,500		$8,700
	Less: Minimum cash balance desired	$10,000		$10,000
	Projected cash excess (deficiency)	$1,500		-$1,300
	Total effects of financing	$0		$2,000
	Ending cash balance	$11,500		$10,700