Check m The president of the retailer Prime Products has just approached the com
ID: 342211 • Letter: C
Question
Check m The president of the retailer Prime Products has just approached the company's bank with a request for a $30,000, 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 $26,500. Accounts receivable on April 1 will total $193,250, of which $168,000 will be collected during April and $18,400 will be collected during May. The remainder will be uncollectible. 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 Book rint rences AprilMay June Sales (all on account) $208,000 $446,000 $270,000 Merchandise purchases $152,000 $172,500 $135,900 Payroll Lease payments Advertising Equipment purchases Depreciation $, 24,400 $ 24,400 19,600 $ 23,600 $ 23,600 23,600 $ 72,400 $ 72,400 49,260 78,500 $ 29,000 29,000 29,000 c. Merchandlise purchases are paid in full during the month follovwing purchase. Accounts payable for merchandise purchases during NeExplanation / Answer
1.
April
May
June
Quarter
Budgeted sales
208000
446000
270000
Cash collections:
First month (30%)
62400
133800
81000
277200
Second month (60%)
124800
267600
392400
Third month (8%)
16640
16640
From Accounts receivables
168000
18400
186400
Total cash collections
230400
277000
365240
872640
2. Cash budget:
April
May
June
Quarter
Beginning cash balance
26500
24000
28600
79100
Add receipts:
Collections from customers
230400
277000
365240
872640
Total cash available
256900
301000
393840
951740
Less cash disbursements:
Merchandise purchased
142500
152000
172500
467000
Payroll
24400
24400
19600
68400
Lease payments
23600
23600
23600
70800
Advertising
72400
72400
49260
194060
Equipment purchases
0
0
78500
78500
Excess (deficiency) of cash available over disbursements
-6000
28600
50380
72980
Financing:
Borrowing
30000
0
0
30000
Repayments
0
0
-30000
-30000
Interest
0
0
-1000
-1000
Total financing
30000
0
-31000
-1000
Ending cash balance
24000
28600
19380
71980
April
May
June
Quarter
Budgeted sales
208000
446000
270000
Cash collections:
First month (30%)
62400
133800
81000
277200
Second month (60%)
124800
267600
392400
Third month (8%)
16640
16640
From Accounts receivables
168000
18400
186400
Total cash collections
230400
277000
365240
872640