Reference no: EM132754511

Question - Jerry Seinfeld, president of the retailer Laugh-a-Lot Products, has just approached the company's bank with a request for a line of credit. Since the company has had difficulty in paying off its lines of credit in the past, the loan officer has asked for a cash budget to help determine whether the line of credit should be granted. The following data are available for the months of April and May.

a) On April 1, the cash balance will be $52,000. Accounts receivable on April 1 will total $303,000, of which $282,000 will be collectible during April and $14,400 will be collected during May. The remainder will be uncollectible. Laugh-a-Lot is also collecting $4,800 in April from a customer whose account was written off as a bad debt.

b) Past experience shows that 20% of a month's sales are collected in the month of sale, 75% in the month following the sale, and 4% in the second month following the sale. The other 1% represents bad debts that are never collected. Budgeted sales and expenses for April and May are as follows:

c) Merchandise purchases are paid in full during the month following the purchase. Accounts payable for merchandise purchases on March 31, which will be paid during April, total $216,000.

d) The sale of a delivery van is taking place on April 15th in the amount of $32,500. A new van will not be purchased until June.

e) Laugh-a-Lot Products requires a minimum cash balance of $40,000 at the end of April. Any required borrowings take place in increments of $1,000 with annual interest of 8%. Repayment of borrowed funds is also made in increments of $1,000. Assume that borrowings are made on the first day of the month in which the cash is required, and the repayments are made on the last day of a month in which cash is available.

Required - Prepare a cash budget for Laugh-a-Lot Products for the months of April and May.