All inventory purchases are made on account as the chain has excellent credit with all ven- dors because of a strong payment history. The following information regarding inventory pur- chases is available. Inventory Purchases September (actual) October (estimated) November (estimated) S120,000 112,000 128,000 December (estimated) 95,000 Cash disbursements for inventory are made in the month following purchase using an aver- age cash discount of 3 percent for timely payment. Monthly cash disbursements for operating expenses during October, November, and December are estimated to be $38,000, $41,000, and $46,000, respectively. (сontimued)
Friendly Freddie’s is an independently owned major appliance and electronics discount chain with seven stores located in a Midwestern metropolitan area. Rapid expansion has created the need for careful planning of cash requirements to ensure that the chain is able to replenish stock adequately and meet payment schedules to creditors. Fred Ferguson, founder of the chain, has established a banking relationship that provides a $200,000 line of credit to Friendly Freddie’s. The bank
requires that a minimum balance of $8,200 be kept in the chain’s checking account at the end of each month. When the balance goes below $8,200, the bank automatically extends the line of
credit in multiples of $1,000 so that the checking account balance is at least $8,200 at month-end.
Friendly Freddie’s attempts to borrow as little as possible and repays the loans quickly in multiples of $1,000 plus 2 percent monthly interest on the entire loan balance. Interest payments and any principal payments are paid at the end of the month following the loan. The chain currently has no outstanding loans.
The following cash receipts and disbursements data apply to the fourth quarter of the current
calendar year.
Estimated beginning cash balance $ 8,800
Estimated cash sales:
October 14,000
November 29,000
December 44,000
Sales on account:
July (actual) 130,000
August (actual) 104,000
September (actual) 128,000
October (estimated) 135,000
November (estimated) 142,000
December (estimated) 188,000
Projected cash collection of sales on account is estimated to be 70 percent in the month following the sale, 20 percent in the second month following the sale, and 6 percent in the third month following the sale. The 4 percent beyond the third month following the sale is determined to be uncollectible. In addition, the chain is scheduled to receive $13,000 cash on a note receiva-
ble in October.
Required:
Prepare Friendly Freddie’s
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 1 images
