Problem 22-6AA Merchandising: Preparation of cash budgets (for three periods) LO

Question

Problem 22-6AA Merchandising: Preparation of cash budgets (for three periods) LO P4 During the last week of August, Oneida Company's owner approaches the bank for a $101,500 loan to be made on September 2 and . repaid on November 30 with annual interest of 15%, for an interest cost of $3,806. 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, $124,100 of net 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 payments September October November $ 230,000 415,000 430,000 191,000 230,000 220,000 Payroll Rent Other cash expenses Repayment of bank loan Interest on the bank loan 19,600 12,000 34,200 21,900 12,000 29,200 24,300 12,000 21,050 101,500 3,806 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 and the remainder is uncollectible. Applying these percents to the August credit sales, for example, shows that $74,800 of the 27% of credit sales is collected in the month of the sale, 44% in the month following the sale, 22% in the second month, 6% in the third $170,000 will be collected in September, $37,400 in October, and $10,200 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 $120,000 August purchases, $84,000 will be paid in September and $36,000 in October.

Explanation / Answer

Calculation of cash receipts from sales Collected in Nov-30 Total Sales Uncollectible August September October November Accounts Receivable Credit sales From August $170,000 $1,700 $45,900 $74,800 $37,400 $10,200 $1,700 September $230,000 $2,300 $62,100 $101,200 $50,600 $16,100 October $415,000 $4,150 $112,050 $182,600 $120,350 November $430,000 $4,300 $116,100 $313,900 Total $136,900 $250,650 $359,500 Calculation of cash payments for merchandise Paid in Nov-30 Total Purchases August September October November Accounts Payable Purchases From August $120,000 $84,000 $36,000 September $230,000 $161,000 $69,000 October $220,000 $154,000 $66,000 November $191,000 $191,000 Total $84,000 $197,000 $223,000 ONEIDA COMPANY Cash Budget For September,October, and November September October November Beginning Cash balance $4,000 $32,600 $23,150 Cash Receipts Sales Collections $136,900 $250,650 $359,500 Loan taken $101,500 Total Cash Available $242,400 $283,250 $382,650 Cash Payments Purchase Payments $84,000 $197,000 $223,000 Payroll $19,600 $21,900 $24,300 Rent $12,000 $12,000 $12,000 Other Cash Expenses $34,200 $29,200 $21,050 Increase in Inventory $60,000 Repayment of bank loan $101,500 Interest on the Bank loan $3,806 Total Cash Payments $209,800 $260,100 $385,656 Ending Cash balance $32,600 $23,150 -$3,006

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