Question

The president of the retailer Prime Products has just approached the company's bank with a request for a $49,000, 90-day loan The purpose of the loan is to assist the company in acquiring inventories. Because the company loans in the past, the loan officer has asked for a cash budget to help determine whether the loan should be made. The are available for the months April through June, during which the loan will be usec has had some difficulty in paying off its following data a. On April 1, the start of the loan period, the cash balance will be $38,500 Accounts recervable on $127,200 will be collected during April and $16 b. Past experience shows that 30% of a month's sales are collected in the month of sale, 60% in the month following the second month following sale. The other 2% is bad debts that are never collected Budgeted month period follow Aprni 1 will total $148,400, of which will be collected ng May, The remainder wil be uncollectible. sale, and 8% in sales and expenses for the three- Sales (al1 on account) Herchandise purchases Payroll Lease payments Advertising Equipment purchases Depreciation s 480,000 $ 450,000 $ 327,9ee $ 315,000 $ 183,000 163,000 21,400 21,400 19,800 $ 34,200 34,2 34,200 $ 74,600 74,600 65,000 5 16,200 16,200 16,200 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 $186,000 d In preparing the cash budget, assume that the $49.000 loan will be made in Aprl and repaid in June Interest on the loan will total $840 Required: 1 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. April May June Quarter tons

Answer 1

Requirement-1: AprilMayJune Quarter Beginning receivable collected April's sales collected May's sales collected $127,200 $16,960 $144,160 [Given] $144,000 $288,000 $38,400 $470,400 [$480,000 x 30%; $480,000 x 60%; $480,000 x 8%) $405,000 [$450,000 x 30%; $450,000 x 60% $135,000 $270,000 $98,100 $98,100 [$327,000 x 30%) June's sales collected $271,200 $439,960 $406,500 $1,117,660 Total cash collections

Requirement-2: Prime Products Cash Budget April $38,500 42,500 $37,260 $38,500 [Previous month's ending balance] $271,200 $439,960 $406,500 $1,117,660 [Ref: Requirement-1] $309,700 $482,460 $443,760 $1,156,160 ->(a) Ma June Quarter Beginning cash balance Cash receipts Total cash available Less cash disbursements: $186,000 $315,000 $183,000 $684,000 [Previous month's purchase paid in current month] 21,400 $21,400 $19,800 $62,600 Merchandise purchase Payroll $34,200 $34,200 $34,200 $102,600 Lease Payment $74,600 $74,600 $65,800 $215,000 Advertising $0 $75,000 $75,000 Equipment purchase $0 $316,200 $445,200 $ Total cash disbursements (b) 377,800 $1,139,200 --> $6,500$37,260 $65,960 $16,960 ->(c)-(a) (b) Excess (Deficit) cash balance Financing: $49,000 $0 $0 $49,000 Borrowings $0 -$49,000 $49,000 [Given] $840 [Given] $840 -(d) $0 Repayments $840 $0 $0 Interest $49,000 Total financing $0 -$49,840 42,500 S37,260$16,120 S16,120 --> (c (d) Ending cash balance (As depreciation is a non-cash expense and it doesn't involve cash outflow, it is not considered in the cash budget)