The president of the retaller Prime Products has just approached the company's bank with a 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 d 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 $42,000. Accounts receivable on April 1 will total $168,000, of wh $144,000 will be collected during April and $19,200 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: Sales (all on account) Merchandise purchases. Payroll Lease payments Advertising Equipment purchases. Depreciation April $ 286,000 $ 218,000 $ 32,800 $ 41,000 $ 68,600 $0 $ 34,000 May $ 664,000 $ 248,500 $ 32,800 $ 41,000 $ 68,600 $0 $ 34,000 June $ 315,000 $ 161,500 $ 22,400 $ 41,000 $ 52,800 $ 64,000 $ 34,000 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 $161,000. d. In preparing the cash budget, assume that the $63,000 loan will be made in April and repaid in June. Interest on the loan will total $980. 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.
The president of the retaller Prime Products has just approached the company's bank with a 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 d 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 $42,000. Accounts receivable on April 1 will total $168,000, of wh $144,000 will be collected during April and $19,200 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: Sales (all on account) Merchandise purchases. Payroll Lease payments Advertising Equipment purchases. Depreciation April $ 286,000 $ 218,000 $ 32,800 $ 41,000 $ 68,600 $0 $ 34,000 May $ 664,000 $ 248,500 $ 32,800 $ 41,000 $ 68,600 $0 $ 34,000 June $ 315,000 $ 161,500 $ 22,400 $ 41,000 $ 52,800 $ 64,000 $ 34,000 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 $161,000. d. In preparing the cash budget, assume that the $63,000 loan will be made in April and repaid in June. Interest on the loan will total $980. 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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Please Solve With Explanation and do not give Solution in image format
Transcribed Image Text:The president of the retailer Prime Products has just approached the company's bank with a request for a $63,000, 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 $42,000. Accounts receivable on April 1 will total $168,000, of which
$144,000 will be collected during April and $19,200 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:
Sales (all on account)
Merchandise purchases
Payroll
Lease payments
Advertising
Equipment purchases.
Depreciation
April
$ 286,000
$ 218,000
$ 32,800
$ 41,000
$68,600
May
$ 664,000
$ 248,500
$ 32,800
$ 41,000
$68,600
$0
$0
$ 34,000 $ 34,000
June
$ 315,000
$ 161,500
$ 22,400
$ 41,000
$ 52,800
$ 64,000
$ 34,000
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 $161,000.
d. In preparing the cash budget, assume that the $63,000 loan will be made in April and repaid in June. Interest on the loan will total
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.
Transcribed Image Text: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.
Schedule of Expected Cash Collections
April
May
Total cash collections
Show Transcribed Text
Required 1 Required 2
Beginning cash balance
Add receipts:
Collections from customers
Total cash available
Less cash disbursements:
Merchandise purchases
Payroll
Lease payments
Advertising
Equipment purchases
Total cash disbursements
Excess (deficiency) of cash available over disbursements
Financing:
Prepare a cash budget, by month and in total, for the three-month period. (Cash deficiency, repayments and interest sho
indicated by a minus sign.)
Borrowings
Repayments
Interest
< Required 1
Total financing
Ending cash balance
3
Prime Products
Cash Budget
April
June
< Required 1
May
Quarter
Required 2
Required 2 >
June
Quarter
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education