The Raymar Company is preparing its cash budget for the months of April and May. The firm has established a $200,000 line of credit with its bank at a 12% annual rate of interest on which borrowings for cash deficits must be made in $10,000 increments. There is no outstanding balance on the line of credit loan on April 1. Principal repayments are to be made in any month in which there is a surplus of cash. Interest is to be paid monthly. If there are no outstanding balances on the loans, Raymar will invest any cash in excess of its desired end-of-month cash balance in U.S. Treasury bills. Raymar intends to maintain a minimum balance of $100,000 at the end of each month by either borrowing for deficits below the minimum balance or investing any excess cash. Expected monthly collection and disbursement patterns are shown below. . . . Collections: 50% of the current month's sales budget and 50% of the previous month's sales budget. Accounts Payable Disbursements: 75% of the current month's accounts payable budget and 25% of the previous month's accounts payable budget. All other disbursements occur in the month in which they are budgeted. Budget Information March $40,000 30,000 Sales Accounts payable Payroll 60,000 Other disbursements. 25,000 May, Raymar will be required to April $50,000 40,000 70,000 30,000 May $100,000 40,000 50,000 10,000 OA. Borrow an additional $20,000 and pay $1,000 interest. OB. Repay $20,000 principal and pay $1,000 interest. O C. Repay $90,000 principal and pay $100 interest. O D. Pay $900 interest.
The Raymar Company is preparing its cash budget for the months of April and May. The firm has established a $200,000 line of credit with its bank at a 12% annual rate of interest on which borrowings for cash deficits must be made in $10,000 increments. There is no outstanding balance on the line of credit loan on April 1. Principal repayments are to be made in any month in which there is a surplus of cash. Interest is to be paid monthly. If there are no outstanding balances on the loans, Raymar will invest any cash in excess of its desired end-of-month cash balance in U.S. Treasury bills. Raymar intends to maintain a minimum balance of $100,000 at the end of each month by either borrowing for deficits below the minimum balance or investing any excess cash. Expected monthly collection and disbursement patterns are shown below. . . . Collections: 50% of the current month's sales budget and 50% of the previous month's sales budget. Accounts Payable Disbursements: 75% of the current month's accounts payable budget and 25% of the previous month's accounts payable budget. All other disbursements occur in the month in which they are budgeted. Budget Information March $40,000 30,000 Sales Accounts payable Payroll 60,000 Other disbursements. 25,000 May, Raymar will be required to April $50,000 40,000 70,000 30,000 May $100,000 40,000 50,000 10,000 OA. Borrow an additional $20,000 and pay $1,000 interest. OB. Repay $20,000 principal and pay $1,000 interest. O C. Repay $90,000 principal and pay $100 interest. O D. Pay $900 interest.
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.
Question
Transcribed Image Text:Fact Pattern:
The Raymar Company is preparing its cash budget for the months of April and May. The firm has established a
$200,000 line of credit with its bank at a 12% annual rate of interest on which borrowings for cash deficits must be
made in $10,000 increments. There is no outstanding balance on the line of credit loan on April 1. Principal repayments
are to be made in any month in which there is a surplus of cash. Interest is to be paid monthly. If there are no
outstanding balances on the loans, Raymar will invest any cash in excess of its desired end-of-month cash balance in
U.S. Treasury bills. Raymar intends to maintain a minimum balance of $100,000 at the end of each month by either
borrowing for deficits below the minimum balance or investing any excess cash. Expected monthly collection and
disbursement patterns are shown below.
.
.
.
Collections: 50% of the current month's sales budget and 50% of the previous month's sales budget
Accounts Payable Disbursements: 75% of the current month's accounts payable budget and 25% of the
previous month's accounts payable budget.
All other disbursements occur in the month in which they are budgeted.
Budget Information
March
Sales
$40,000
Accounts payable
30,000
Payroll
60,000
Other disbursements 25,000
In May, Raymar will be required to
A.
April
$50,000
OB.
O C.
O D. Pay $900 interest
40,000
70,000
30,000
May
$100,000
40,000
50,000
10,000
Borrow an additional $20,000 and pay $1,000 interest.
Repay $20,000 principal and pay $1,000 interest.
Repay $90,000 principal and pay $100 interest
Jy
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