During the last week of August, Oneida Company’s owner approaches the bank for a
ID: 2498744 • Letter: D
Question
During the last week of August, Oneida Company’s owner approaches the bank for an $107,000 loan to be made on September 2 and repaid on November 30 with annual interest of 14%, for an interest cost of $3,745. 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 $4,000 cash balance, $121,600 of accounts receivable, and $100,000 of accounts payable. Its budgeted sales, merchandise purchases, and various cash disbursements for the next three months follow.
The budgeted September merchandise purchases include the inventory increase. All sales are on account. The company predicts that 24% of credit sales is collected in the month of the sale, 44% in the month following the sale, 21% in the second month, 8% in the third, and the remainder is uncollectible. Applying these percents to the August credit sales, for example, shows that $70,400 of the $160,000 will be collected in September, $33,600 in October, and $12,800 in November. All merchandise is purchased on credit; 40% of the balance is paid in the month following a purchase, and the remaining 60% is paid in the second month. For example, of the $115,000 August purchases, $46,000 will be paid in September and $69,000 in October.
Prepare a cash budget for September, October, and November for Oneida Company. Show supporting calculations as needed.
During the last week of August, Oneida Company’s owner approaches the bank for an $107,000 loan to be made on September 2 and repaid on November 30 with annual interest of 14%, for an interest cost of $3,745. 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 $4,000 cash balance, $121,600 of accounts receivable, and $100,000 of accounts payable. Its budgeted sales, merchandise purchases, and various cash disbursements for the next three months follow.
Explanation / Answer
Cash Budget
Working Notes:
Statement showing collection from debtors
Statement showing payment for merchandise
Particulars September October November Opening Balance 4000 70000 (2700) Collection from debtors 70400 148000 263200 Payment for merchandise (46000) (157000) (214000) Cash disbursements - Payroll (20500) (22100) (24800) - Rent (11000) (11000) (11000) - Other cash expenses (33900) (30600) (20700) Loan taken 107000 Repayment of loan with interest (110745) Closing balance 70000 (2700) (120745)Related Questions
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