Question

The Sharpe Corporation’s sales for the first eight months of 2004 are as follows:
January     $ 90,000
February     120,000
March     135,000
April     240,000
May     $300,000
June     270,000
July     225,000
August     150,000
Of Sharpe’s sales, 10% for cash, 60% is collected in the month following sale, 30% is collected in the 2nd month following sale. November and December sales for 2003 were $220,000 and $175,000.
Sharpe purchases raw materials two months in advance of its sales equal to 60% of final sales price. Supplier is paid one month after it makes delivery.
Sharpe pays $10,000 per month for rent, $20,000 month for expenditures. Tax prepayments of $22,500 each quarter, beginning in March.
Cash balance at December 31, 2003, was $22,000; minimum balance of $15,000 must be maintained. Assume that any short-term financing needed to maintain the cash balance is paid off in the month following the month of financing if sufficient funds are available. Interest on short-term loans (12%) is paid monthly. Borrowing to meet estimated monthly cash needs takes place at the beginning of the month. 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 (.12 × 1/12 × $60,500) owed for April and paid at the beginning of May.
1.     Prepare a cash budget for Sharpe covering the first seven months of 2004.
2.     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?