The president of the retailer Prime Products has just approached the company’s b

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 $26,500. Accounts receivable on April 1 will total $193,250, of which $168,000 will be collected during April and $18,400 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 $142,500.

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 $1,000.

Prepare a schedule of expected cash collections for April, May, and June, and for the three months in total.

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.)

Garrison 15e Recheck 2015-01-16

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

Question 1. April May June Total Credit Sales 208000 446000 270000 924000 Schedule of Cash Budget April May June Total Cash Collection: Beginning Accounts Receivable 168000 18400 186400 April Sales 62400 100800 16640 179840 May Sales 133800 267600 401400 June Sales 81000 81000 Total Cash Collection 230400 253000 365240 848640 Question 2. Cash Budget April May June Total Beginning Cash 26500 24500 5100 26500 Bank Loan 30000 30000 Collection 230400 253000 365240 848640 Total Cash Available 286900 277500 370340 905140 Less: Disbursements: Marchendise Purchase 142000 152000 172500 466500 Payroll 24400 24400 19600 68400 Lease Payments 23600 23600 23600 70800 Advertisement 72400 72400 49260 194060 Equipment purchase 78500 78500 Interest On Loan 1000 1000 Loan Repayment 30000 30000 Total Disbursement 262400 272400 374460 909260 Ending Cash Balance 24500 5100 -4120 -4120

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