Prime Products hopes to borrow $79,000 on April 1 and repay it plus interest of $1,140 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 $16,500. Accounts receivable on April 1 will total $190,400, of which $163,200 will be collected during April and $21,760 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 $ 312,000 $ 204,000 $ 24,000 $ 24,800 $ 79,200 $ 17,200 May $ 428,000 $ 162,000 $ 24,000 $ 24,800 $ 79,200 $ 17,200 June $ 319,000 $ 178,500 $ 18,900 $ 24,800 $74,480 $ 78,000 $ 17,200 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 $160,000. 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 $79,000 loan is made on April 1 and repaid with interest on June 30.
Prime Products hopes to borrow $79,000 on April 1 and repay it plus interest of $1,140 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 $16,500. Accounts receivable on April 1 will total $190,400, of which $163,200 will be collected during April and $21,760 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 $ 312,000 $ 204,000 $ 24,000 $ 24,800 $ 79,200 $ 17,200 May $ 428,000 $ 162,000 $ 24,000 $ 24,800 $ 79,200 $ 17,200 June $ 319,000 $ 178,500 $ 18,900 $ 24,800 $74,480 $ 78,000 $ 17,200 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 $160,000. 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 $79,000 loan is made on April 1 and repaid with interest on June 30.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:Prime Products hopes to borrow $79,000 on April 1 and repay it plus interest of $1,140 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 $16,500. Accounts receivable on April 1 will total $190,400, of which
$163,200 will be collected during April and $21,760 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
May
$ 312,000
$ 204,000
$ 24,000
$ 24,800
$ 79,200
$ 428,000
$ 162,000
$ 24,000
$ 24,800
$ 79,200
$ 17,200 $ 17,200
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 $160,000.
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 $79,000 loan is made on April 1 and repaid
with interest on June 30.
Required 1 Required 2
Complete this question by entering your answers in the tabs below.
Total cash collections
Calculate the expected cash collections for April, May, and June, and for the three months in total.
June
$319,000
$ 178,500
$ 18,900
$ 24,800
$74,480
$ 78,000
$ 17,200
Schedule of Expected Cash Collections
April
May
Required 1
June
Quarter
Required 2 >
Transcribed Image Text:Complete this question by entering your answers in the tabs below.
Required 1 Required 2
Prepare a cash budget, by month and in total, for the three-month period. Assume the $79,000 loan is made on April 1 and repa
with interest on June 30.
Note: Cash deficiency, repayments and interest should be indicated by a minus sign.
Beginning cash balance
Add receipts:
Collections from customers
Total cash available
Less cash disbursements:
Merchandise purchases
Payroll
Lease payments
Advertising
Equipment purchases
Total cash disbursements
Excess (deficiency) of cash available over disbursements
Financing:
Borrowings
Repayments
Interest
Prime Products
Cash Budget
April
Total financing
Ending cash balance
May
June
Quarter
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