The president of the retailer Prime Products has just approached the company’s bank with a request for a $75,000, 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 $42,600. Accounts receivable on April 1 will total
$184,800, of which $158,400 will be collected during April and
$21,120 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% is bad debts that are
never collected. Budgeted sales and expenses for the three-month
period follow:
April | May | June | |
Sales (all on account) | $280,000 | $522,000 | $299,000 |
Merchandise purchases | $241,000 | $170,500 | $139,500 |
Payroll | $23,000 | $23,000 | $26,600 |
Lease payments | $23,000 | $23,000 | $23,000 |
Advertising | $60,400 | $60,400 | $78,020 |
Equipment purchases | - | - | $108,000 |
Depreciation | $28,000 | $28,000 | $28,000 |
c.) Merchandise purchases are paid in full during the month
following purchase. Accounts payable for merchandise purchases
during March, which will be paid in April, total $180,000.
d.) In preparing the cash budget, assume that the $75,000 loan will
be made in April and repaid in June. Interest on the loan will
total $1,100.
Required:
1.) Calculate the 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.
The president of the retailer Prime Products has just approached the company’s bank with a request...
Check my wor 6 The president of the retailer Prime Products has just approached the company's bank with a request for a $75,000, 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...
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