FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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The president of the retailer Prime Products has just approached the company's bank with a request for a $63,000, 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 $42,000. Accounts receivable on April 1 will total $168,000, of which
$144,000 will be collected during April and $19,200 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
$ 286,000
$ 218,000
$ 32,800
$ 41,000
$68,600
May
$ 664,000
$ 248,500
$ 32,800
$ 41,000
$68,600
$0
$0
$ 34,000 $ 34,000
June
$ 315,000
$ 161,500
$ 22,400
$ 41,000
$ 52,800
$ 64,000
$ 34,000
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 $161,000.
d. In preparing the cash budget, assume that the $63,000 loan will be made in April and repaid in June. Interest on the loan will total
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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Transcribed Image Text:The president of the retailer Prime Products has just approached the company's bank with a request for a $63,000, 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 $42,000. Accounts receivable on April 1 will total $168,000, of which $144,000 will be collected during April and $19,200 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 $ 286,000 $ 218,000 $ 32,800 $ 41,000 $68,600 May $ 664,000 $ 248,500 $ 32,800 $ 41,000 $68,600 $0 $0 $ 34,000 $ 34,000 June $ 315,000 $ 161,500 $ 22,400 $ 41,000 $ 52,800 $ 64,000 $ 34,000 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 $161,000. d. In preparing the cash budget, assume that the $63,000 loan will be made in April and repaid in June. Interest on the loan will total 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
Total cash collections
Show Transcribed Text
Required 1 Required 2
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:
Prepare a cash budget, by month and in total, for the three-month period. (Cash deficiency, repayments and interest sho
indicated by a minus sign.)
Borrowings
Repayments
Interest
< Required 1
Total financing
Ending cash balance
3
Prime Products
Cash Budget
April
June
< Required 1
May
Quarter
Required 2
Required 2 >
June
Quarter
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Transcribed Image Text: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 Total cash collections Show Transcribed Text Required 1 Required 2 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: Prepare a cash budget, by month and in total, for the three-month period. (Cash deficiency, repayments and interest sho indicated by a minus sign.) Borrowings Repayments Interest < Required 1 Total financing Ending cash balance 3 Prime Products Cash Budget April June < Required 1 May Quarter Required 2 Required 2 > June Quarter
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