Jodi Horton, president of the retailer Crestline Products, has just approached the companys bank with a request for a $30,000, 90-day loan. The purpose of the loan is to assist the company in acquiring 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 AprilJune, 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 months sales are collected in the month of sale, 75% in the month following sale, and 4% in the second month following sale. The other 1% represents bad debts that are never collected. Budgeted sales and expenses for the three-month period follow:

	April	May	June
Sales (on account)	$200,000	$300,000	$250,000
Merchandise purchase	120,000	180,000	150,000
Payroll	9,000	9,000	8,000
Lease payments	15,000	15,000	15,000
Advertising	70,000	80,000	60,000
Equipment purchase	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. d. In preparing the cash budget, assume that the $30,000 loan will be made in April and repaid in June. Interest on the loan is 16% (annual).

REQUIREMENTS

1. Prepare a schedule of 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.

3. If the company needs a minimum cash balance of $20,000 to start each month, can the loan be repaid as planned? Explain.