The president of the retailer Prime Products has just approached the company’s b
ID: 2398163 • Letter: T
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:
On April 1, the start of the loan period, the cash balance will be $42,500. Accounts receivable on April 1 will total $171,000, of which $140,500 will be collected during April and $22,500 will be collected during May. The remainder will be uncollectible.
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:
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 $150,500.
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 $960.
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.)
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:
Explanation / Answer
Sale Budget
Particulars April May June
30% 91200 182400 24320
60% 159600 319200
8% 82500
Total sales 91200 342000 426020
Cash Budget for the month April to June
Particulars April May June
$ $ $
opening Cash Balance 42500 24700 28200
Accounts Recievable recieved 140500 22500 -
Sales in cash 91200 342000 426020
Loan recieved 30000 - -
Total inflow of cash (a) 304200 389200 454220
Outflows of cash :
Purchases 150500 232000 201500
Payroll 27600 27600 22000
Advertising 60200 60200 60280
Lease payment 41200 41200 41200
Equipment purchased 82000
Loan Repayment 30000
Interest repayment 960
Total cash outflow (b) 279500 361000 437940
Closing Cash (a-b) 24700 28200 16280
Important points
1) Depreciation is a non cash item hence will not be presented into cash budget.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.