The president of the retailer Prime Products has just approached the company\'s

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: 0 a. On April 1, the start of the loan period, the cash balance will be $30,800. Accounts receivable on April 1 will total $195,300, of which $160,000 will be collected during April and $28,800 will be collected during May. The remainder will be uncollectible. b. Past experience shows hat 30% of a month's sales are collected in the month of sale 60% in he m o o g sale a 8% the second month i sale. The ther bad debts that are never collected. Budgeted sales and expenses for the three-month period follow June Sales (all on account) Merchandise purchases Payroll Lease payments Advertising Equipment purchases Depreciation May 368,000 $ 512,000 345,000 $ 272,000 S 180,000 $ 146,000 $ 31,200 S 31,200 $ 26,200 $ 33,600 S 33,600 $ 33,600 $ 64,800 S 64,800 $ 62,260 115,000 $15,200 S 15,200 $ 15,200 c. Merchandise purchases are paid in full during the month following purchase. Accounts payable for merchandise purchases during March, which will be paid in April, total $179,000 d. 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 $920 Required 1. Calculate the expected cash collections for April, May, and June, and for the three months in total. 2. Prepare a cash budget, by month and in total, for the three-month period

Explanation / Answer

Workings:

Please note that since no information about Payment of Payroll, Lease Payments and Advertising are given, I have assumed that these are accruals and no payment is made till now.

Also if you want me to include this in payments then just comment I will surely help.

Expected Cash collections April May June Total Collection from Accounts Receivable          160,000            28,800                     -            188,800 Collection from April Sale          110,400          220,800            29,440          360,640 Collection from May Sale          153,600          307,200          460,800 Collection from June Sale          103,500          103,500          270,400          403,200          440,140      1,113,740

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.