ACC 321 - BBAs#4 Problem (Chapter 6) Cash Budget Jodi Horton, president of Crestline 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 building inventories in support of peak April sales. Since 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-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 $151,500, of which $141,000 will be collected during April and $7,200 will be collected during May. The remainder will be uncollectible. b. Past experience shows that 20% of a month's sales are collected in the month of sale, 75% in the month following sale, and 49 in the second month following sale. The other 1% represents bad debts that are never collected. Budgeted sales and expenses for the period follow: April May June Sales .. $200,000 $300,000 $250,000 Merchandise purchases . 120.00 180.000 197 150.000 Payroll..... 0.000 9.000 8.000 Lease payments ..... . 15.000 15,000 15.000 Advertising ...... .... 70.000 80.000 60,000 Equipment purchases ....... 8.000 Depreciation 10.000 10,000 10,000 C. Merchandise purchases are paid in full during the month following purchase. Accounts payable for merchandise purchases on March 31, which will be paid during April, total $108,000. Expenses payroll thru advertising are paid in the month budgeted. d. In preparing the cash budget, assume that the $30,000 loan will he made in April and ihe 90-oay loan made on April 1 has an annual interest rate of 6% and doesn't have to be paid back by June 30. The company tries to maintain a minimum balance of $20,000 to start each month. 1) Prepare a Schedule of Budgeted Cash Collections (cash receipts expected from sales) for the quarter April thru June and in total. Check figures: total cash collected for April = $ 181,000 2) Prepare a cash payments budget for merchandise purchased for April thru June. 3) Prepare a Cash Budget for each month starting in April and in total in good form. Note: Payroll, lease payments, and advertising paid in month incurred. Also, remember that depreciation is a non-cash transaction. Check figures: Ending cash balance (April 30) - $ 27,000 Ending cash balance (June 30) = $20,750