Required: a. 1. Prepare a cash budget for August and September. 2. What are the prospects for this company if its sales growth continues at a similar rate? b. 1. Assume now that PrimeTime Sportswear is a mature firm, and that the July to September data represent a seasonal peak in business. Prepare a cash budget for October, November, and December, assuming that the income statements for November and December are the same as October's. 2. Can the cash budget be used to support a request to a bank for a seasonal loan?
Required: a. 1. Prepare a cash budget for August and September. 2. What are the prospects for this company if its sales growth continues at a similar rate? b. 1. Assume now that PrimeTime Sportswear is a mature firm, and that the July to September data represent a seasonal peak in business. Prepare a cash budget for October, November, and December, assuming that the income statements for November and December are the same as October's. 2. Can the cash budget be used to support a request to a bank for a seasonal loan?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Concept explainers
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
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Transcribed Image Text:Problem 14-22 (Static) Cash budget-part 2 LO 14-4, 14-7
PrimeTime Sportswear is a custom imprinter that began operations six months ago. Sales have exceeded management's most
optimistic projections. Sales are made on account and collected as follows: 60% in the month after the sale is made and 35% in the
second month after sale. Merchandise purchases and operating expenses are paid as follows:
In the month during which the merchandise is purchased or the cost is incurred
In the subsequent month
70%
30%
PrimeTime Sportswear's income statement budget for each of the next four months, newly revised to reflect the success of the firm,
follows:
Sales
July
$ 84,000
August
$ 108,000
September
$ 136,000
October
$ 118,000
Cost of goods sold:
Beginning inventory
Purchases
$ 12,000
$ 28,800
88,000
Cost of goods available for sale
$ 87,600
(28,800)
Less: Ending inventory
Cost of goods sold
Operating expenses
Gross profit
Operating income
75,600
$ 58,800
$ 25,200
21,000
$ 4,200
$ 116,800
(41,200)
$ 75,600
$ 32,400
25,600
$ 41,200
97,800
$ 139,000
(43,800)
$ 95,200
$ 40,800
28,600
$ 6,800
$ 12,200
$ 43,800
66,200
$ 110,000
(40,000)
$ 70,000
$ 48,000
32,200
$ 15,800
Cash on hand June 30 is estimated to be $75,000. Collections of June 30 accounts receivable were estimated to be $40,000 in July
and $30,000 in August. Payments of June 30 accounts payable and accrued expenses in July were estimated to be $48,000.
Required:
a. 1. Prepare a cash budget for August and September.
2. What are the prospects for this company if its sales growth continues at a similar rate?
b. 1. Assume now that PrimeTime Sportswear is a mature firm, and that the July to September data represent a seasonal peak in
business. Prepare a cash budget for October, November, and December, assuming that the income statements for November
and December are the same as October's.
2. Can the cash budget be used to support a request to a bank for a seasonal loan?
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