Question

The president of the retailer Prime Products has just approached the company’s bank with a request for a $30,000, 90-day loan. The purpose of the loan is to assist the company in acquiring inventories. Because the company has had some difficulty in paying off its loans in the past, the loan officer has asked for a cash budget to help determine whether the loan should be made. The following data are available for the months April through June, during which the loan will be used: a. On April 1, the start of the loan period, the cash balance will be $28,800. Accounts receivable on April 1 will total $168,200, of which $132,000 will be collected during April and $30,000 will be collected during May. The remainder will be uncollectible. b. Past experience shows that 30% of a month’s sales are collected in the month of sale, 60% in the month following sale, and 8% in the second month following sale. The other 2% represents bad debts that are never collected. Budgeted sales and expenses for the three-month period follow: April May June Sales (all on account) $ 334,000 $ 510,000 $ 343,000 Merchandise purchases $ 266,000 $ 200,000 $ 176,500 Payroll $ 19,000 $ 19,000 $ 18,800 Lease payments $ 27,800 $ 27,800 $ 27,800 Advertising $ 70,400 $ 70,400 $ 57,890 Equipment purchases $ ? ? 105,500 Depreciation $ 23,000 $ 23,000 $ 23,000 c. Merchandise purchases are paid in full during the month following purchase. Accounts payable for merchandise purchases during March, which will be paid during April, total $149,000. d. In preparing the cash budget, assume that the $30,000 loan will be made in April and repaid in June. Interest on the loan will total $1,180. Required: 1. Prepare a schedule of expected cash collections for April, May, and June, and for the three months in total. 2. Prepare a cash budget, by month and in total, for the three-month period. (Cash deficiency, repayments and interest should be indicated by a minus sign.) Next Visit question mapQuestion 3 of 8 Total 3 of 8 Pre

Answer 1

		April	May	June	Total
Total budgeted sales (on credit)		$334,000	$510,000	$343,000	$1,187,000
Calculation of Expected cash collection from customers:
		April	May	June	Total
From Accounts Receivable		$132,000	$30,000		162,000
From April sales (30%,60%,8%*334000)		100,200	200,400	26,720	327,320
From May sales (30%,60%*510000)			$153,000.0	$306,000.0	459,000
From June sales				$102,900.0	102,900
Total		$232,200	$383,400	$435,620	$1,051,220
Cash Budget
April, May, and June
	April	May	June	Total
Beginning cash balance	$28,800	$24,800	$25,000	$28,800
Cash receipts from customers	232,200	383,400	435,620	1,051,220
Loan	30,000			30,000
Total cash available	$291,000	408200	460620	$1,110,020
Cash disbursements:
Payments for Purchases/Inventory	149,000	266,000	200,000	615,000
Payments for Payroll	19,000	19,000	18,800	56,800
Payments for lease	27,800	27,800	27,800	83,400
Payment for Adverstising	70,400	70,400	57,890	198,690
Total cash disbursements	266,200	383,200	304,490	953,890
Excess of cash avaialbel over cash disbursement	24,800	25,000	156,130	$156,130
Additional loan (loan repayment)			-30,000	-30,000
Payment of Interest			-1,180	-1,180
Ending cash balance	$24,800	$25,000	$124,950	$124,950
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