The president of the retailer Prime Products has just approached the company\'s

Question

The president of the retailer Prime Products has just approached the company's bank with a request for a $35,000, 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 $30,000. Accounts receivable on April 1 will total $138,000, of which $130,500 will be collected during April and $5,200 will be collected during May. The remainder will be uncollectible.

b.
Past experience shows that 19% of a month's sales are collected in the month of sale, 75% in the month following sale, and 4% 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) $204,000 $314,000 $344,000
Merchandise purchases $121,000 $171,000 $151,000
Payroll $8,900 $8,900 $7,900
Lease payments $14,000 $14,000 $14,000
Advertising $71,600 $73,800 $57,200
Equipment purchases ? ? $8,500
Depreciation $10,000 $10,000 $10,000

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 $108,400.

d. In preparing the cash budget, assume that the $35,000 loan will be made in April and repaid in June. Interest on the loan will total $880.


Requirement 1:
Prepare a schedule of expected cash collections for April, May, and June, and for the three months in total. (Deficiencies should be preceded by a minus sign when appropriate. Enter all other amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)

Month
April May June Quarter
From accounts receivable $ $ $ $
From April sales
From May sales
From June sales




Total cash collections
$
$
$
$

Requirement 2:
Prepare a cash budget, by month and in total, for the three-month period. (Negative amounts should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)

Month
April May June Quarter
Total cash available $ $ $ $
Total disbursements




Excess (deficiency) of receipts over
disbursements
Total financing




Cash balance, ending
$
$
$
$

Requirement 3:
If the company needs a minimum cash balance of $20,000 to start each month, can the loan be repaid as planned?

Explanation / Answer

please split up the 3 requirements as 3 different posts as asking 3/multiple questions under one post is not allowed here, so split it into 3 questions before somebody flags your question and your account gets terminated :) no worries, we will always help yoou

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