Question

Lois Bragg owns a small restaurant in Boston. Ms. Bragg provided her accountant with the following summary information regarding expectations for the month of June. The balance in accounts receivable as of May 31 is $59,000. Budgeted cash and credit sales for June are $146,000 and $582,000, respectively. Credit sales are made through Visa and MasterCard and are collected rapidly. Seventy five percent of credit sales is collected in the month of sale, and the remainder is collected in the following month. Ms. Bragg's suppliers do not extend credit. Consequently, she pays suppliers on the last day of the month. Cash payments for June are expected to be $706,000. Ms. Bragg has a line of credit that enables the restaurant to borrow funds on demand; however, they must be borrowed on the last day of the month. Interest is paid in cash also on the last day of the month. Ms. Bragg desires to maintain a $33,000 cash balance before the interest payment. Her annual interest rate is 12 percent. Required a. Compute the amount of funds Ms. Bragg needs to borrow for June. b. Determine the amount of interest expense the restaurant will report on the June pro forma income statement. c. What amount will the restaurant report as interest expense on the July pro forma income statement? (Round your answers to 2 decimal places.) a. Amount to be borrowed Interest expense (June) Interest expense (July) C.

Answer 1

Hello Dear,

I have tried to give best possible answer. If you have any doubts, please mention in comment section. I will definitely respond back as early possible.

And please excuse my bad handwriting.

ANS: (a) Amount to be borrowed : (d) Interest empense (jone) : (c) Interest expense (yury) • Amount. in $ $97500 $ Cw wore-2) $ 975 worekings: (2) Amount to be borrowed = Cash payment for June o r cash available for payment in June = $ 706000 - $608900 = $ 97,500 + Calculation of cash available for payment in June :- # cash collected from 31st May Receivable: $ 59000 A cash sales in the month of June :$ 146000 A Collection from credit sale of June (582000 : $436500 Totar cash available : $641.500 : ($ 33000) Cash Balana maintainance Net cash available : $608,500

WiNote 2 : Interest enpense are recognised only on - accrual basis. ms Bragg - borrowed on the last day of June. Hence are interest has to be reeported es in the month of Jury. W.Note *3 : Interest enpense for the month of yuny: =4* 9.7500 X 124) the-12 month = $.975

Thanks Dear. Have a Wonderful Day.