Q1) Jodi Horton, president of retailer Crestline Products, has just approached company's bank with request for a $30,000. 90-day loan. Purpose of loan is to help company in acquiring inventories in support of peak April sales. As company has had some difficulty in paying off its loans in past, loan officer has asked for cash budget to assist find out whether loan must be made. Following data are available for months April-June, during which the loan will be used:
a. On April 1, start of loan period, cash balance will be $26,000. Accounts receivable on April 1 will total $151,000, of which $141,000 will be gathered during April and $7,200 will be accumulated during May. Remainder will be uncollectible.
b. Past experience illustrates that 20% of month's sales are accumulated in the month of sale, 75% in month following sale, and 4% in second month following sale. Other 1% represents bad debts which are never collected. Budgeted sales and expenses for three-month period follow:
|
April |
May |
June |
| Sales (all on account) |
$200,000 |
$300,000 |
$250,000 |
| Merchandise purchases |
$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 purchases |
$8,000 |
- |
- |
| Depriciation |
$10,000 |
$10,000 |
$10,000 |
c. Merchandise buys are paid in full during month following purchase. Accounts payable for merchandise purchase on March 31, that will be paid during April, total $18,000.
d. In preparing cash budget, suppose that $30,000 loan will be made in April and repaid in June. Interest on loan will total $1,200.
Create schedule of exposed cash collections for April, May, and June for three months in total.