MNP Ltd., has prepared the following sales and cash disbursement estimates tor t

Question

MNP Ltd., has prepared the following sales and cash disbursement estimates tor tire period February-June of the current year. Based on previous experience, 20% of sales have been for cash. Of credit sales, 70% are collected I month after sale, and the remaining 30% are collected 2 months after the sale. The firm wishes to maintain a minimum ending balance in its cash account of $50. Balances above this amount would be invested in short-term government securities (marketable securities), whereas any deficits would be financed through short-term bank borrowing (notes payable). The beginning cash balance at April 1 is $115. Prepare a Cash budget for April, May and June How much financing, if any, at a maximum would MNP Ltd,. requires to meet its obligations during this 3-month period? Present a Extract Pro Forma Balance Sheet dated at the end of June from the information presented above. Give the size of each of the following: Cash, Notes Payable, Marketable Securities, and Accounts Receivable.

Explanation / Answer

Schedule of collections from sales:

a.Cash Budget

b. MNP Ltd. would require a maximum financing of $ 92 during the 3-month period.

c. Pro Forma Balance Sheet as of June 30:

Month February March April May June Sales in dollars 500 600 400 200 200 Cash sales 100 120 80 40 40 Collection from credit sales of February 280 120 March 336 144 April 224 96 May 112 48 Total collections from sales 536 408 248

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