Question

Problem 8-23 Schedule of Expected Cash Collectlons; Cash Budget [L08-2, LO8-8 The president of the retailer Prime Products has just approached the company's bank with a request for a $55,000, 90-day loan. The purpose of the loan is to assist the compay 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 $26.000. Accounts receivable on April 1 will total $156,800, of which $134.400 will be collected during April and $17,920 will be collected during May. The remainder will be uncollectible b. Past experience shows that 30% of a month's sales are collected in the month of sale, 60% in the month following sale, and 8% in the second month following sale. The other 2% is bad debts that are never collected. Budgeted sales and expenses for the three- month period follow April June S 375,ee0$ 412,080 S 336,00e S 155,0eeS 172,0ee $ 18,80 S 22, 5ee 24,4ee $ 74,8ee 74, 8ee $Se,42e S 106, see 3 1,006S 17,8 $17,e May Sales (all on account) Merchandise purchases Payroll Lease payments Advertising Equipment punchases Depreciation $ 238,ee8 18, Be0 S 24,408 $ 24,40e $ c Merchandise purchases are paid in full during the month following purchese Accounts payable for merchandise purchases during March, which will be paid in Aprit, tots $156,500 d in preparing the cash budget, assume that the $55.000 lcan wi be made in April and repaid in June interest on the oan will tota $900 Required: 1 Calculate the expected cash collections for Apr May and Juneand fo the three monthsn tote 2 Prepare a cash budget, oy month and in total for the theemonth berod Complete this question by entering your answers in the tabs below. Prev Ne e to search

Answer 1

1. Prepare a schedule of expected cash collections for April, May, and June, and for the three
months in total.
	April	May	June	Quarter
From accounts receivable	$       134,400	$         17,920		$       152,320
From April sales:
375000*0.3	112,500			$       112,500
375000*0.6		225,000		$       225,000
375000*0.08			30,000	$         30,000
From May sales:
412000*0.3		123,600		123,600
412000*0.6			247,200	247,200
From June sales:
336000*0.3			100,800	100,800
Total cash collections	$       246,900	$      366,520	$      378,000	$       991,420
2. Prepare a cash budget, by month and in total, for the three-month period.
	April	May	June	Quarter
Beginning cash balance	26,000	43,400	53,920	26,000
Add receipts:
Collections from customers	246,900	366,520	378,000	991,420
Total cash available	272,900	409,920	431,920	1,017,420
Less cash disbursements:
Merchandise purchases	166,500	238,000	155,000	559,500
Payroll	18,800	18,800	22,500	60,100
Lease payments	24,400	24,400	24,400	73,200
Advertising	74,800	74,800	50,420	200,020
Equipment purchases	-	-	106,500	106,500
Total cash disbursements	284,500	356,000	358,820	999,320
Excess (deficiency) of cash available over disbursements	(11,600)	53,920	73,100	18,100
Financing:
Borrowings	55,000	-	-	55,000
Repayments	-	-	(55,000)	(55,000)
Interest	-	-	(900)	(900)
Total financing	55,000	-	(55,900)	(900)
Ending cash balance	43,400	53,920	17,200	17,200