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: April $ 392,000 $ 498,000 $ 346,000 $ 276,000 $ 246,500 $ 152,000 $ 33,400 $ 33,400 $ 20,300 $ 23,200 $ 23,200 $ 76,200 $ 76,200 $ 45,080 $ $ 33,400 $ 33,400 $ 33,400 Мay June Sales (all on account) Merchandise purchases Payroll Lease payments Advertising Equipment purchases Depreciation $ 23,200 70,000 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.
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: April $ 392,000 $ 498,000 $ 346,000 $ 276,000 $ 246,500 $ 152,000 $ 33,400 $ 33,400 $ 20,300 $ 23,200 $ 23,200 $ 76,200 $ 76,200 $ 45,080 $ $ 33,400 $ 33,400 $ 33,400 Мay June Sales (all on account) Merchandise purchases Payroll Lease payments Advertising Equipment purchases Depreciation $ 23,200 70,000 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.
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:
April
Мay
June
Sales (all on account)
Merchandise purchases
Рayroll
Lease payments
Advertising
Equipment purchases
Depreciation
$ 33,400
$ 23,200
$ 76,200
$
$ 392,000 $ 498,000 $ 346,000
$ 152,000
$ 20,300
$ 23,200
$ 45,080
70,000
$ 33,400
$ 276,000 $ 246,500
$ 33,400
$ 23,200
$ 76,200
$ 33,400 $ 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.
Transcribed Image Text: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.
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