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 $102,500 loan to be made on September 2 and repaid on November 30 with annual interest of 10%, for an interest cost of $2,563. 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 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 $4,000 cash balance, $130,900 of 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 Sales Merchandise purchases Cash disbursements September October November $230,000 $485,000 $420,000 205,000 203,000 225,000 20,300 8,000 33,800 21,950 8,000 30,000 24,100 8,000 20,450 102,500 2,563 Pa en Other cash expenses Repayment of bank loan Interest on the bank loan Operations began in August; August sales were $170,000 and purchases were $120,000 The budgeted September merchandise purchases include the inventory increase. All sales are on account. The company predicts that 23% of credit sales is collected in the month of the sale, 47% in the month following the sale, 19% in the second month, 7% in the third, and the remainder is uncollectible. Applying these percents to the August credit sales, for example, shows that $79,900 of the $170,000 will be collected in September, $32,300 in October, and $11,900 in November. All merchandise is purchased on credit: 50% of the balance is paid in the month following a purchase, and the remaining 50% is paid in the second month. For example, of the $120,000 August purchases, $60,000 will be paid in September and $60,000 in October Required Prepare a cash budget for September, October, and November for Apache Arts Company. (Input all amounts as positive values. Leave no cells blank-be certain to enter "O" wherever required. Round your intermediate calculations and final answers to the nearest dollar amount. Omit the "$" sign in your response.)

Explanation / Answer

APACHE ARTS COMPANY Cash Budget for September, October and November Beginning cash balance 4000 117200 136700 Cash receipts: Collection on accounts receivable 132800 251950 380150 Receipts from Bank Loan 102500 0 0 Total Cash available 239300 369150 516850 Cash disbursements: Payments on accounts payable 60000 172500 215000 Payroll 20300 21950 24100 Rent 8000 8000 8000 Other cash expenses 33800 30000 20450 Repayment of bank loan 102500 Interest on bank loan 2563 Total Cash disbursements 122100 232450 372613 Ending cash balance 117200 136700 144237 Workings: Collection of accounts receivables: Sept Oct Nov from august sale 79900 32300 11900 from september sale 52900 108100 43700 from october sale 0 111550 227950 from november sale 0 0 96600 total collections 132800 251950 380150 Payment for merchandise purchases: Sept Oct Nov for august purchases 60000 60000 0 for september purchases 0 112500 112500 for october purchases 0 0 102500 for november purchases 0 0 0 60000 172500 215000

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