During the last week of August, Oneida Company’s owner approaches the bank for a

Question

During the last week of August, Oneida Company’s owner approaches the bank for a $101,000 loan to be made on September 2 and repaid on November 30 with annual interest of 16%, for an interest cost of $4,040. The owner plans to increase the store’s inventory by $60,000 during September and needs the loan to pay for inventory acquisitions. The bank’s loan officer needs more information about Oneida’s ability to repay the loan and asks the owner to forecast the store’s November 30 cash position. On September 1, Oneida is expected to have a $4,500 cash balance, $131,400 of net accounts receivable, and $100,000 of accounts payable. Its budgeted sales, merchandise purchases, and various cash disbursements for the next three months follow. Budgeted Figures* September October November Sales $ 230,000 $ 475,000 $ 460,000 Merchandise purchases 225,000 200,000 196,000 Cash payments Payroll 19,900 21,900 24,600 Rent 11,000 11,000 11,000 Other cash expenses 34,400 29,800 21,400 Repayment of bank loan 101,000 Interest on the bank loan 4,040 *Operations began in August; August sales were $180,000 and purchases were $100,000. The budgeted September merchandise purchases include the inventory increase. All sales are on account. The company predicts that 27% of credit sales is collected in the month of the sale, 44% in the month following the sale, 22% in the second month, 6% in the third, and the remainder is uncollectible. Applying these percents to the August credit sales, for example, shows that $79,200 of the $180,000 will be collected in September, $39,600 in October, and $10,800 in November. All merchandise is purchased on credit; 90% of the balance is paid in the month following a purchase, and the remaining 10% is paid in the second month. For example, of the $100,000 August purchases, $90,000 will be paid in September and $10,000 in October. Required: Prepare a cash budget for September, October, and November. (Round your final answers to the nearest whole dollar.)

Explanation / Answer

working September October November Sales $230,000 475000 460000 Collection of accounts receivable $79,200 39600 10800 Collection of Sep sales (230000*27%,44%,22%) $62,100 $101,200 $50,600 Collection of Oct sales (475000*27%,44%)) 128250 209000 Collection ofNov sales 124200 Total cash collections 141300 269050 394600 Cash disburments January February March Payment of accounts payable 90000 10000 Payment of Sep purchases (225000*90%,10%) 202500 22500 Payment of Oct purchases (200000*90%) 180000 Total cash disbursements 90000 212500 202500 Cash Budget January February March Beginning cash balance 4500 91500 85350 Total receipts 141300 269050 394600 Subtotal 145800 360550 479950 Less: disbursements Payment for inventory 90000 212500 202500 Paymrnt of payroll 19900 21900 24600 Payment of Rent 11000 11000 11000 Other cash expenses 34400 29800 21400 Total cash disbursements 155300 275200 259500 Cash excess (deficiency) before financing -9500 85350 220450 Financing: Borrowing 101000 Loan principal repaid -101000 Loan interest paid -4020 Ending cash balance 91500 85350 115430 If any doubt please comment

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