Lipman Auto Parts, a family-owned auto parts store, began January with $10,300 cash. Management forecasts that collections from credit customers will be $11,400 in January and $14,800 in February. The store is scheduled to receive $5,000 cash on a business note receivable in January. Projected cash payments include materials pur- chases ($3,000 in January and $3,600 in February), direct labor ($7,000 monthly) and manufacturing overhead ($2,500 in January and $2,800 in February). Selling and administrative expenses are ($2,700 each month).
Lipman 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. Lipman Auto Parts borrows as little as possible and pays back loans in quarterly installments of $2,000, plus 4% annual interest on the entire unpaid principal. The first loan payment occurs three months after the initial loan.
Requirements
E7-16
1. Prepare Lipman Auto Parts' cash budget for January and February. 2. How much cash will Lipman Auto Parts borrow, if any, in February if collections
from customers that month total $13,800 instead of $14,800?