During the last week of August. Apache Arts Company\'s owner approaches the bank

Question

During the last week of August. Apache Arts Company's owner approaches the bank for an S109.000 loan to be made on September 2 and repaid on November 30 with annual interest of 13%. for an interest cost of $3.543. The owner plans to increase the store's inventory by S60.000 during September and needs the loan to pay for inventory acquisitions The bank's loan officer needs more information about Apache Arts' ability to repay the loan and asks the owner to forecast the store's November 30 cash position. On September 1. Apache Arts is expected to have a S4.500 cash balance. S129.600 of accounts receivable, and S100,000 of accounts payable Its budgeted sales, merchandise purchases, and various cash disbursements for the next three months follow. Operations began in August: August sales were S180.000 and purchases were S125.000 The budgeted September merchandise purchases include the inventory increase. All sales are on account. The company predicts that 28% of credit sales is collected in the month of the sale. 43% in the month following the sale. 23% in the second month. 5% in the third, and the remainder is uncollectible. Applying these percents to the August credit sales, for example, shows that S77.400 of the S180.000 will be collected in September. S41,400 in October, and $9 000 in November All merchandise is purchased on credit; 70% of the balance is paid in the month following a purchase, and the remaining 30% is paid in the second month For example, of the $125,000 August purchases. S87.500 will be paid in September and $37,500 in October

Explanation / Answer

Answer:

Apache Arts company Cash Budget For September,October and November Particulars Sept Oct Nov. Beg. Cash balance 4500 108100 125700 Cash receipts: Collection on accounts receivable 144600 277600 400050 Receipts from bank loan 109000 Total cash available 258100 385700 525750 Cash Disbursements: Payments on accounts payable 87500 198500 226500 Payroll 19700 22100 23800 Rent 9000 9000 9000 Other cash expenses 33800 30400 20150 Repayment on bank loan 0 0 109000 Interest on bank loan 0 0 3543 Total cash disbursements 150000 260000 391993 Ending cash balance 108100 125700 133757

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