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 inventorles. Because the company has had some difficulty in paying off its oens 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: a On Apri 1, the start of the loan period, the cash balance ill be $42.500. Accounts receivable on April 1 will total $171,000, of which 140,500 will be collected during April and $22,500 will be collected during May. The remainder will be uncollectible. Past experience shows that 300% of a month's sales are colected in the month of sale, 60% in the month following sale, and 8% in month period follow sales (al1 on aocoune Payroll Lease payments Advertising Eqaipment purchases Depreciation 304,000 532,000 $275s, 000 232,000 201,500 $138,000 27,600 27,600 $22,000 41,200 41,200 41,200 60.200 60.200 60,280 33,000 33,000 33,000 c. Merchandise purchases are paid in full during the month following purchase. Accounts payable for merchandise purchases during March, which will be pald in April, total $150,500 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 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 2 3 5 6

Explanation / Answer

Statement showing Expected Cash Collection from Sales Detail April May June Total Sales Made $304,000.00 $532,000.00 $275,000.00 $1,111,000.00 Collection of Amount receivable for April Sale $91,200.00 $182,400.00 $24,320.00 $297,920.00 Collection of Amount receivable for May Sale $159,600.00 $319,200.00 $478,800.00 Collection of Amount receivable for June Sale $82,500.00 $82,500.00 Collection made from Sale (a) $91,200.00 $342,000.00 $426,020.00 $859,220.00 Cash Received for balance as on 1st April (b) 140500 $22,500.00 $163,000.00 Total Cash Receipt (a+b) $231,700.00 $364,500.00 $426,020.00 $1,022,220.00 Statement Showing Cash Disbursement for Purchase Detail April May June Total Merchandise Purchased $232,000.00 $201,500.00 $138,000.00 $571,500.00 Payment Made for Merchandised Purchase $232,000.00 $201,500.00 $433,500.00 Payment of Outstanding balance as on 1St April $150,500.00 $150,500.00 Total Cash Disbursement $150,500.00 $232,000.00 $201,500.00 $584,000.00 Prime Product Cash Budget Particular April May June Total Beginning Cash Balance $42,500.00 $24,700.00 $28,200.00 $42,500.00 Add: Cash Collection $231,700.00 $364,500.00 $426,020.00 $1,022,220.00 Total Cash Available (a) $274,200.00 $389,200.00 $454,220.00 $1,064,720.00 Less:Cash Disbursement For Merchandise $150,500.00 $232,000.00 201500 $584,000.00 Advertisement $60,200.00 60200 60200 $180,600.00 Equipment Purchse 82000 $82,000.00 Lease Payment 41200 41200 41200 $123,600.00 Payroll 27600 27600 27600 $82,800.00 Total Cash Disbursement (b) $279,500.00 $361,000.00 $412,500.00 $1,053,000.00 Excess ( Deficiency) of Cash (a-b) -$5,300.00 $28,200.00 $41,720.00 $11,720.00 Financing Borrowing -Loan $30,000.00 $30,000.00 Repayment -Loan -30000 -$30,000.00 Interest on Note Payable -960 -$960.00 Ending Cash Balance $24,700.00 $28,200.00 $10,760.00 $10,760.00

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