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.
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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:The president of the retailer Prime Products has just approached the company's bank with a request for a $91,000, 90-day loan. The
purpose of the loan is to assist the company in acquiring Inventories. Because the company has had some difficulty in paying off its
loans in the past, the loan officer has asked for a cash budget to help determine whether the loan should be made. 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 $15,800. Accounts receivable on April 1 will total $176,400, of which
$151,200 will be collected during April and $20,160 will be collected during May. The remainder will be uncollectible.
b. Past experience shows that 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% is 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
$ 392,000
$ 276,000
$ 33,400
$ 23,200
$ 76,200
$ 33,400
May
$ 498,000
$ 246,500
$ 33,400
$ 23,200
$ 76,200
$0
$ 33,400
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 $159,000.
d. In preparing the cash budget, assume that the $91,000 loan will be made in April and repaid in June. Interest on the loan will total
$1,260.
Total cash collections
June
$ 346,000
$ 152,000
$ 20,300
$ 23,200
$ 45,080
$ 70,000
$ 33,400
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.
Complete this question by entering your answers in the tabs below.
Required 1 Required 2
Calculate the expected cash collections for April, May, and June, and for the three months in total.
Schedule of Expected Cash Collections
April
May
June
Quarter
Transcribed Image Text:Prepare a cash budget, by month and in total, for the three-month period. (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
Total financing
Ending cash balance
Prime Products
Cash Budget
April
$
0
0
0
0
0 $
May
0
June
0
0
Quarter
0
0
0
0
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