1.ABC Furniture Inc. has hired you to build a 3-month cash budget. It is currently August1. ABC has $10,000 in the bank and owes $20,000 on its bank line of credit. The bankcharges .5% (.005) monthly on any outstanding balance the previous month. ABCborrows as little as possible and repays back any outstanding loans as quickly as possible,but must keep at least $10,000 in its account. ABC can borrow or pay back any amountat the end of each month.Projected cash receipts from customers for the next three months, respectively, are$250,800, $280,000, and $275,000. Projected cash receipts from Notes Receivables are$10,500, $20,000, and $31,500. Projected cash payments for merchandise are $187,600,$182,000, and $190,000. Projected cash payments for operating expenses are $90,000,$95,000, and $99,000.Prepare cash budgets for August, September, and October in side-by-side columns. Showhow much cash will be borrowed or repaid each month according to the bank's rulesabove. Show the loan balance for the end of each month.

Prepare cash budgets for August, September, and October in side-by-side columns. Show how much cash will be borrowed or repaid each month according to the bank's rules above. Show the loan balance for the end of each month.

Prepare cash budgets for August, September, and October in side-by-side columns. Show how much cash will be borrowed or repaid each month according to the bank's rules above. Show the loan balance for the end of each month.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Conversion Cycle

Conversion cycle is also known as cash cycle or net operating cycle. Conversion cycle refers to how much time a company takes to turn its investments which is done from stock or any other financial resources into cash flows from sales.

Question

1.
ABC Furniture Inc. has hired you to build a 3-month cash budget. It is currently August
1. ABC has $10,000 in the bank and owes $20,000 on its bank line of credit. The bank
charges .5% (.005) monthly on any outstanding balance the previous month. ABC
borrows as little as possible and repays back any outstanding loans as quickly as possible,
but must keep at least $10,000 in its account. ABC can borrow or pay back any amount
at the end of each month.
Projected cash receipts from customers for the next three months, respectively, are
$250,800, $280,000, and $275,000. Projected cash receipts from Notes Receivables are
$10,500, $20,000, and $31,500. Projected cash payments for merchandise are $187,600,
$182,000, and $190,000. Projected cash payments for operating expenses are $90,000,
$95,000, and $99,000.
Prepare cash budgets for August, September, and October in side-by-side columns. Show
how much cash will be borrowed or repaid each month according to the bank's rules
above. Show the loan balance for the end of each month.

Expert Solution

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Cash budget will show the overall cash flows of this company.

It will include all forms of cash inflows and outflows.

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