BAC is a retailer that sells sound systems.

BAC is a retailer that sells sound
systems. The company is planning its
cash needs for the month of January, 2017.
In the past, BAC has had to borrow money during the post-Christmas
season to offset a significant decline in sales. The following information has been assembled
to assist in preparing a cash flow forecast for January.
a.
January 2017 forecasted income statement:
Sales $200,000
Cost of goods sold 150,000
Gross profit 50,000
Variable selling expenses $10,000
Fixed administrative expenses 20,000 30,000
Net income $ 20,000
b.
Sales are 10% for cash and 90% on credit.
c.
Credit sales are collected over a three-month period with 40% collected
in the month of sale, 30% in the following month, and 20% in the second month
following sale. 10% of credit sales are never collected. November 2016 sales
totaled $300,000 and December sales totaled $500,000.
d.
40% of a monthâs inventory purchases are paid for in the same month. The
remaining 60% are paid in the following month. Accounts payable relate solely
to inventory purchases. At December 31, accounts payable totaled $400,000.
e.
The company maintains its ending inventory levels at 60% of the cost of
the merchandise to be sold in the following month. The merchandise inventory at
December 31, 2016 was $90,000. February 2017 sales are budgeted at $150,000.
Gross profit percentage is expected to remain unchanged.
f.
The company pays $10,000 monthly cash dividends to shareholders.
g.
The cash balance at December 31, 2016 was $30,000; the company must
maintain a cash balance of at least this amount at the end of each month.
h.
The company can borrow on its operating loan in increments of $10,000 at
the beginning of each month, up to a total loan balance of $500,000. The
interest rate on this loan is 1% per month, payable on the first day of the
next month. There is no operating loan at December 31, 2016.