Assignment:

It was November 2018 and the President of BIG Corporation wanted to find out if the
company had enough cash to pay the principal balance of the company’s loan worth
P4 million by the end of 2019. He asked the Chief Accountant to prepare cash budget
for 2019
The following assumptions which will be used for the preparation of the cash budget
for 2019 are as follows:
a. Projected quarterly sales for 2019 are as follows:
1st quarter – P3M
2nd quarter – P4.5M
3rd quarter – P6M
4th quarter – P8M

Expected 4th quarter sales in 2018 was P5M. Sales are collected 90% in the
quarter the sales are made and the remaining 10% is collected on the following
quarter.
b. Cost of sales is 70% of sales. Merchandise inventories are purchased in the
quarter these are sold. All merchandise purchased in the quarter are paid in
the same quarter.
c. Variable operating expenses which are paid in cash are 15% of sales. On top of
these, fixed operating expenses paid in cash are about P100,000 per quarter.
Quarterly depreciation charged to operation is P50,000
d. Interest expense paid every quarter is P100,000
e. Income tax rate is 30%. The income taxes to be paid every quarter will be as
follows:
1st quarter – P230,000
2nd quarter – P60,000
3rd quarter – P127,500
4th quarter – P195,000
4th quarter of 2018 tax is P225,000
f. Expected cash balance at the end of 2016 is about P400,000. For 2019 target
cash balance is raised to P500,000 because of expected increase in sales.

Prepare the 2019 cash budget and find out if the company can pay the
P4million principal at the end of 2019.