**Prime Products Cash Management and Budgeting Exercise**Prime Products plans to borrow $30,000 on April 1 and repay it with an additional interest of $1,200 on June 30. The following financial data is available for April to June, detailing how the loan will be utilized:**Initial Financial Position:**- On April 1, the starting cash balance is $24,000.- Accounts receivable on April 1 totals $140,000, with $120,000 to be collected in April and $16,000 in May. The remaining amount will be uncollectible.**Sales and Collection Assumptions:**- 30% of monthly sales are collected in the sale month, 60% in the subsequent month, and 8% in the second month post-sale. The remaining 2% are uncollectible. | **Budgeted Sales and Expenses (April-June)** ||----------------------------------------------|| **April** | **May** | **June** || Sales (all on account) | $300,000 | $400,000 | $250,000 || Merchandise purchases | $140,000 | $160,000 | $130,000 || Payroll | $20,000 | $20,000 | $18,000 || Lease payments | $12,000 | $22,000 | $22,000 || Advertising | $60,000 | $60,000 | $50,000 || Equipment purchases | $0 | $0 | $65,000 || Depreciation | $15,000 | $15,000 | $15,000 |**Additional Notes:**- Merchandise purchases are settled in full in the month after purchase. The accounts payable for March's purchases, to be paid in April, sums to $140,000.**Tasks Required:**1. **Cash Collection Projections:** - Determine expected cash collections for April, May, June, and cumulatively for the quarter.2. **Cash Budget Preparation:** - Create a monthly and overall cash budget for the three-month period. Assume the $30,000 loan is borrowed on April 1 and repaid with interest by June 30.**Schedule of Expected Cash Collections:**- Table placeholder for calculating collections per month and total quarter cash collections **Educational Resource: Cash Budget Preparation****Objective:**1. Calculate the expected cash collections for April, May, and June, as well as for the total three-month period.2. Prepare a cash budget for each month and the entire three-month period. Assume a $30,000 loan is made on April 1 and will be repaid with interest on June 30.**Instructions:**Complete the exercise by entering your responses in the provided sections.**Task Overview:****Cash Budget Preparation**- Prepare a detailed cash budget for Prime Products for the months of April, May, and June, and consolidate the data for the quarterly total. - Note: Indicate any cash deficiencies, repayments, and interest with a minus sign.**Cash Budget Structure:**1. **Beginning Cash Balance**2. **Add Receipts:** - Collections from Customers3. **Total Cash Available**4. **Less Cash Disbursements:** - Merchandise Purchases - Payroll - Lease Payments - Advertising - Equipment Purchases5. **Total Cash Disbursements**6. **Excess (Deficiency) of Cash Over Disbursements**7. **Financing Activities:** - Borrowings - Repayments - Interest8. **Total Financing**9. **Ending Cash Balance**This exercise will help you understand how to manage cash flow, anticipate potential shortfalls, and effectively use financing to meet financial obligations. Make sure to consider the interest and repayment of the $30,000 loan made at the beginning of the period. Click on “Required 1” and “Required 2” tabs for further instructions and input areas.

Budgeting is the process of estimating future operations based on past performance. The percentages…

Prime Products hopes to borrow $30,000 on April 1 and repay it plus interest of $1,200 on June 30. The for the months April through June, during which the loan will be used: a. On April 1, the start of the loan period, the cash balance will be $24,000. Accounts receivable on April 1 will total $140,000, of which $120,000 will be collected during April and $16,000 will be collected during May. The remainder will be uncollectible. b. The company estimates 30% of a month's sales are collected in the month of sale, 60% in the month following sale, and 8% in the second month following sale. The other 2% are bad debts that are never collected. Budgeted sales and expenses for the three- month period follow: Sales (all on account) Merchandise purchases Payroll Lease payments Advertising Equipment purchases Depreciation April $ 300,000 $ 210,000 $ 20,000 $ 22,000 $ 60,000 $ 15,000 Required 1. Required 2 c. Merchandise purchases are paid in full during the month following purchase. Accounts payable for merchandise purchases during March, which will be paid in April, total $140,000. Required: 1. Calculate the expected cash collections for April, May, and June, and for the three months in total. 2. Prepare a cash budget, by month and in total, for the three-month period. Assume the $30,000 loan is made on April 1 and repaid with interest on June 30. Total cash collections May $ 400,000 $ 160,000 $ 20,000 $ 22,000 $ 60,000 $ 15,000 Complete this question by entering your answers in the tabs below. June June $ 250,000 $ 130,000 $ 18,000 $ 22,000 $ 50,000 Calculate the expected cash collections for April, May, and June, and for the three months in total. Schedule of Expected Cash Collections. April May < Required 1 $ 65,000 $ 15,000 Quarter Required 2 >

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q