### Cash Budget and Loan Planning for Siro Stereo**Background:**During the last week of March, Siro Stereo’s owner sought a $125,000 loan from the bank, to be borrowed on April 1 and repaid by June 30, with an annual interest rate of 10%. The interest cost will amount to $3,125. The plan is to increase the store’s inventory by $100,000 in April using part of the loan. The bank requires an analysis of Siro Stereo’s ability to repay the loan, focusing on the cash position forecast for June 30. On April 1, it is expected that Siro Stereo will have a cash balance of $12,000, accounts receivable of $121,500, and accounts payable amounting to $90,000.**Budgeted Figures for Sales, Purchases, and Cash Disbursements:**| | April | May | June ||------------|--------|--------|--------|| **Sales** | 350,000| 500,000| 550,000|| **Merchandise Purchases** | 250,000| 200,000| 190,000|**Other Cash Disbursements:**| | April | May | June ||------------|--------|--------|--------|| **Payroll**| 22,500 | 30,000 | 37,500 || **Rent** | 12,000 | 12,000 | 12,000 || **Other Cash Expenses** | 9,000 | 5,500 | 16,500 |**Loan Repayment and Interest:**- **Repayment of Bank Loan:** $125,000 in June- **Interest on Bank Loan:** $3,125 in June**Sales and Credit Policies:**- All sales are on credit.- Credit sale collections are as follows: - 10% in the month of sale - 60% in the second month - 25% in the third month - 5% of sales are uncollectible**Purchases:**- All merchandise purchases are on credit.- Payment of purchases is 80% in the following month and 20% in the next month after purchase.**Financial Analysis Tools:**- Sections available for analysis include Horizontal Analysis, Vertical Analysis **Preparing a Schedule of Cash Collections for April, May, and June****Instructions:** 1. Prepare a schedule of cash collections for April, May, and June. (Collections of the Accounts Receivable from previous months are as follows: April - $81,000; May - $33,750; June - $4,050 – remember to include in your schedule of cash collections).---**Siro Stereo** **Schedule of Cash Collections**| | April | May | June ||-----------------------|-------|-----|------|| Prior months (A/R) | | | || April | | | || May | | | || June | | | || **Total Cash Collections** | | | |---**Explanation:** This table helps in tracking the cash collections from accounts receivable over three months. The rows for "Prior months (A/R)" indicate collections from past months that contribute to current monthly cash collections. Ensure that the specified amounts for each month are correctly included in the table under the relevant month columns.

Cash collections are important to be known for preparing the cash budget and to know the cash…

During the last week of March, Siro Stereo's owner approaches the bank for a $125,000 loan to be made on April 1 and repaid on June 30 with annual interest of 10%, for an interest cost of $3,125. The owner plans to increase the store's inventory by $100,000 in April and needs the loan to pay for inventory acquisitions. The bank's loan officer needs more information about Siro Stereo's ability to repay the loan and asks the owner to forecast the store's June 30 cash position. On April 1, Siro Stereo is expected to have a $12,000 cash balance, $121,500 of accounts receivable, and $90,000 of accounts payable. Its budgeted sales, merchandise purchases, and various cash disbursements for the next three months follows: April May June Sales 350,000 500,000 550,000 Mdse purchases Other cash disbursements: Payroll 250,000 200,000 190,000 22,500 30,000 37,500 Rent 1,2,000 12,000 12,000 Other cash expenses 9,000 13,500 16,500 125,000 Repayment of bank loan Interest on bank loan 3,125 The budgeted April merchandise purchases include the inventory increase. All sales are on account. Company experience is that 10% of credit sales are collected in the month of sale, 60% in the month following the sale, 25% in the second month, 3% in third, and the remainder is uncollectible. All merchandise is purchased on credit: 80% of the balance is paid in the month following a purchase and the remaining 20% is paid in the second month.

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q