Prime Products hopes to borrow $51,000 on April 1 and repay it plus interest of $860 on June 30. The following data are available 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 $24,400. Accounts receivable on April 1 will total $151,200, of which $129,600 will be collected during April and $17,280 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) Payroll Merchandise purchases Lease payments Advertising Equipment purchases Depreciation April June $ 285,000 May $ 548,000 $ 251,000 $194,000 $ 179,000 $ 171,000 $ 35,400 $ 35,400 $ 19,900 $ 35,800 $ 35,800 $ 35,800 $ 64,400 $ 64,400 $ 40,400 $ 68,500 $ 19,400 $ 19,400 $ 19,400 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 $141,500. 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 $51,000 loan is made on April 1 and repaid with interest on June 30.
Prime Products hopes to borrow $51,000 on April 1 and repay it plus interest of $860 on June 30. The following data are available 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 $24,400. Accounts receivable on April 1 will total $151,200, of which $129,600 will be collected during April and $17,280 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) Payroll Merchandise purchases Lease payments Advertising Equipment purchases Depreciation April June $ 285,000 May $ 548,000 $ 251,000 $194,000 $ 179,000 $ 171,000 $ 35,400 $ 35,400 $ 19,900 $ 35,800 $ 35,800 $ 35,800 $ 64,400 $ 64,400 $ 40,400 $ 68,500 $ 19,400 $ 19,400 $ 19,400 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 $141,500. 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 $51,000 loan is made on April 1 and repaid with interest on June 30.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Prime Products hopes to borrow $51,000 on April 1 and repay it plus interest of $860 on June 30. The following data are available 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 $24,400. Accounts receivable on April 1 will total $151,200, of which
$129,600 will be collected during April and $17,280 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
April
$285,000
$194,000
May
$ 548,000
June
$ 251,000
$ 179,000
$ 171,000
$ 35,400
$ 35,400
$ 19,900
$ 35,800
$ 35,800
$ 35,800
Advertising
Equipment purchases
Depreciation
$ 64,400
$ 64,400
$ 40,400
$ 68,500
$ 19,400
$ 19,400
$ 19,400
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 $141,500.
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 $51,000 loan is made on April 1 and repaid
with interest on June 30.
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