The president of the retailer Prime Products has just approached the companys bank with a request for a $55,000, 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:
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 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 $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 $375, 000 $412,000 $336,000 $238,000 $155,000 $172,000 $ 18,800 18,800 22,500 $ 24,400 24,400 24,400 $ 74,800 74,800 $ 50,420 June May Sales (all on account) Merchandise purchases Payroll Lease payments Advertising Equipment purchases -$106,500 Depreciation $ 17,000 17,000 17,000 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 $166,500. d. In preparing the cash budget, assume that the $55,000 loan will be made in April and repaid in June. Interest on the loan will total $900 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. Answer is not complete Complete this question by entering your answers in the tabs below Required1Required 2 Calculate the expected cash collections for April, May, and June, and for the three months in total April June Quarter Total cash collections 246,90066,520378 378,000991,420 Answer is not complete Complete this question by entering your answers in the tabs below Required 1Required 2 Prepare a cash budget, by month and in total, for the three-month period. (Cash deficiency, repayments and interest should be indicated by a minus sign.) Prime Products Cash Budget May June Quarter April $ 26,000 Beginning cash balance Add receipts Collections from customers Total cash available 26,000 Less cash disbursements: Merchandise purchases Lease payments Advertising Equipment purchases Total cash disbursements 0 0 Excess (deficiency) of cash available over 26,000 disbursements Financing Borrowings Repayments Interest Total financing $ 26,000 $ Ending cash balance Required 1 Required 2
