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Question
The treasurer for Chic Man Clothing must decide how much money the company needs to borrow in July. The balance sheet for June 30, 2010 is presented below:Chic Man Clothing Balance Sheet
June 30, 2010
| Cash | $87,000 | Accounts payable | $550,000 | |
| Marketable securities | 123,000 | Long-term debt | 350,000 | |
| Accounts receivable | 360,000 | Common stock | 130,000 | |
| Inventory | 300,000 | Retained earnings | 270,000 | |
| Total current assets | 870,000 | Total liabilities and stockholders' equity | 1,300,000 | |
| Fixed assets | 430,000 | |||
| Total assets | $1,300,000 |
The company expects sales of $400,000 for July. The company has observed that 25% of its sales is for cash and that the remaining 75% is collected in the following month. The company plans to purchase $345,000 of new clothing. Usually 70% of purchases is for cash and the remaining 30% of purchases is paid in the following month. Salaries are $135,000 per month, lease payments are $35,000 per month, and depreciation charges are $20,000 per month. The company plans to purchase a new van for $60,000 in July and sell its marketable securities for $123,000. If the company must maintain a minimum cash balance of $25,000, how much money must the company borrow in July?
Answer
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