Problem 8.39 Cash Budget Friendly Freddie's is an independently owned major appliance and electronies discount chain with seven stores located in a Midwestern metropolitan area. Rapid expansion has created the need for careful planning of cash requirements to ensure that the chain is able to replenish stock adequately and meet payment schedules to creditors. Fred Ferguson, founder of the chain, has established a banking relationship that provides a $200,000 line of credit to Friendly Freddie's. The bank
Problem 8.39 Cash Budget Friendly Freddie's is an independently owned major appliance and electronies discount chain with seven stores located in a Midwestern metropolitan area. Rapid expansion has created the need for careful planning of cash requirements to ensure that the chain is able to replenish stock adequately and meet payment schedules to creditors. Fred Ferguson, founder of the chain, has established a banking relationship that provides a $200,000 line of credit to Friendly Freddie's. The bank
Chapter1: Financial Statements And Business Decisions
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At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
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Transcribed Image Text:OBJECTIVE 3
СМА
Problem 8.39 Cash Budget
Friendly Freddie's is an independently owned major appliance and electronics discount chain with
seven stores located in a Midwestern metropolitan area. Rapid expansion has created the need for
careful planning of cash requirements to ensure that the chain is able to replenish stock adequately
and meet payment schedules to creditors. Fred Ferguson, founder of the chain, has established a
banking relationship that provides a $200,000 line of credit to Friendly Freddie's. The bank
requires that a minimum balance of $8,200 be kept in the chain's checking account at the end of
cach month. When the balance goes below $8,200, the bank automatically extends the line of
credit in multiples of $1,000 so that the checking account balance is at least $8,200 at month-end.
Friendly Freddie's attempts to borrow as little as possible and repays the loans quickly in
multiples of S1,000 plus 2 percent monthly interest on the entire loan balance. Interest payments
and any principal payments are paid at the end of the month following the loan. The chain cur-
rently has no outstanding loans.
The following cash recipts and disbursements data apply to the fourth quarter of the current
calendar year.
S 8,800
Estimated beginning cash balance
Estimated cash sales:
October
14,000
29,000
November
December
44,000
Sales on account:
July (actual)
August (actual)
September (actual)
October (estimated)
November (estimated)
December (estimated)
130,000
104,000
128,000
135,000
142,000
188,000
Projected cash collection of sales on account is estimated to be 70 percent in the month fol-
lowing the sale, 20 percent in the second month following the sale, and 6 percent in the third
month following the sale. The 4 percent beyond the third month following the sale is determined
to be uncollectible. In addition, the chain is scheduled to receive $13,000 cash on a note recciva-
ble in October.
All inventory purchases are made on account as the chain has excellent credit with all ven-
dors because of a strong payment history. The following information regarding inventory pur-
chases is available.
Inventory Purchases
September (actual)
October (estimated)
November (estimated)
December (estimated)
$120,000
112,000
128,000
95,000
Cash disbursements for inventory are made in the month following purchase using an aver-
age cash discount of 3 percent for timely payment. Monthly cash disbursements for operating
expenses during October, November, and December are estimated to be $38,000, $41,000, and
$46,000, respectively.
(continued)
Transcribed Image Text:Required:
Prepare Friendly Freddie's cash budget for the months of October, November, and December
showing all receipts, disbursements, and credit line activity, where applicable. (CMA adapted)
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