Northeast Auto Parts, afamily-owned auto parts store, began January with $10,600 cash. Management forecasts that collections from credit customers will be $11,300 in January and $14,700 in February. The store is scheduled to receive $6,500 cash on a business note receivable in January. Projected cash payments include inventory purchases ($14,400 in January and $12,200 in February) and selling and administrative expenses($3,500 each month). Northeast 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. Northeast Auto Parts borrows as little as possible and pays back loans in quarterly installments of $2,500, plus 33% APR interest on the entire unpaid principal. The first payment occurs three months after the loan.1. Pleaseprepare Northeast AutoParts's cash budget for January and February.
2. How much cash will Northeast Auto Parts borrow in February if collections from customers that month total $13,700 instead of $14,700?

Part 1. $500 required

Part 2. $1,500 required

Explanation:

Part 1.

                                     Northern Auto Parts

                                           Cash Budget

Cash Receipts:

                                                         January       February

Beginning cash balance                     10600         10500

Cash receipts from customers            11300          14700  

Cash receipt on note receivable        6500              0    

Cash available                                     28400        25200

Cash payments:    

Purchases of inventory                         14400           12200

Selling and administrative expenses    3500            3500  

Total cash payments                          17900           15700

Now

                                                                              $                  $

Cash Receipts:                                                  28400        25200

Cash payments:                                             17900         15700

Ending cash balance before financing          10500           9500  

Less: Ending cash balance Required             10000          10000

Projected cash excess                                       500             -500  

Total effects of financing                                     0                 500  

Ending cash balance                                         10500          10,000

Part 2.

Cash Receipts:

                                                         January       February

Beginning cash balance                     10600         10500

Cash receipts from customers            11300          13700  

Cash receipt on note receivable        6500              0    

Cash available                                     28400        24200

Cash payments:    

Purchases of inventory                         14400           12200

Selling and administrative expenses    3500            3500  

Total cash payments                          17900           15700

Now

                                                                              $                  $

Cash Receipts:                                                  28400        24200

Cash payments:                                             17900         15700

Ending cash balance before financing          10500           8500  

Less: Ending cash balance Required             10000          10000

Projected cash excess                                       500             -1500  

Total effects of financing                                     0                1500  

Ending cash balance                                         10500          10,000  

The company will have to borrow $1,500 in the month February.

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