23.6A Explain why Rizzo's budgeted cash IleJake Marley, owner of Marley Wholesale, is negotiating with the bank for a $200,000, 90-day,12 percent loan effective July 1 of the current vear. If the bank grants the loan, the proceeds willbe $194,000, which Marley intends to use on July 1 as follows: pay accounts payable, $150,000;purchase equipment, $16,000; add to bank balance, $28,000.The current working capital position of Marley Wholesale, according to financial statements asof June 30, is as follows.Cash in bank$ 20,000Receivables (net of allowance for doubtful accounts)160,000Merchandise inventory90,000$ 270,000Total current assetsAccounts payable (including accrued operating expenses)150,000Working capital ....$ 120,000 Chapter 23 Operational BudgetingThe bank loan officer asks Marley to prepare a forecast of his cash receipts and cash paymentsfor the next three months to demonstrate that the loan can be repaid at the end of September.Marley has made the following estimates, which are to be used in preparing a three-monthcash budget: Sales (all on account) for July, $300,000; August, $360,000; September, $270,000:and October, $200,000. Past experience indicates that 80 percent of the receivables generated inany month will be collected in the month following the sale, 19 percent will be collected in thesecond month following the sale, and 1 percent will prove uncollectible. Marley expects to collect$120,000 of the June 30 receivables in July and the remaining $40,000 in August.Cost of goods sold consistently has averaged about 65 percent of sales. Operating expenses arebudgeted at $36,000 per month plus 8 percent of sales. With the exception of $4,400 per monthdepreciation expense, all operating expenses and purchases are on account and are paid in themonth following their incurrence.Merchandise inventory at the end of each month should be sufficient to cover the followingmonth's sales.Instructionsa. Prepare a monthly cash budget showing estimated cash receipts and cash payments for July,August, and September, and the cash balance at the end of each month. Supporting schedulesshould be prepared for estimated collections on receivables, estimated merchandise purchases,and estimated payments for operating expenses and of accounts payable for merchandisepurchases.b. On the basis of this cash forecast, write a brief report to Marley explaining whether he will beable to repay the $200,000 bank loan at the end of September.

Answer a) Answer b) Based on the above cash forecast it can be concluded that Marley will not be able to pay the bank loan on the due date i.e. September 30. If he is able to borrow at least $50000 on September 30 from any other bank, then he is able to meet its obligations of $200000.

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Jake Marley, owner of Marley Wholesale, is negotiating with the bank for a $200,000, 90-day, 12 percent loan effective July 1 of the current vear. If the bank grants the loan, the proceeds will be $194,000, which Marley intends to use on July 1 as follows: pay accounts payable, $150,000; purchase equipment, $16,000; add to bank balance, $28,000. The current working capital position of Marley Wholesale, according to financial statements as of June 30, is as follows. Cash in bank $ 20,000 Receivables (net of allowance for doubtful accounts) 160,000 Merchandise inventory 90,000 Total current assets $ 270,000 Accounts payable (including accrued operating expenses) 150,000 Working capital. $ 120,000