Reference no: EM131202286
The president of the retailer Prime Products has just approached the company’s bank with a request for a $30,000, 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 $42,200. Accounts receivable on April 1 will total $148,700, of which $127,500 will be collected during April and $16,400 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% represents bad debts that are never collected. Budgeted sales and expenses for the three-month period follow: April May June Sales (all on account) $ 438,000 $ 480,000 $ 261,000 Merchandise purchases $ 291,000 $ 183,500 $ 136,500 Payroll $ 27,400 $ 27,400 $ 26,100 Lease payments $ 28,600 $ 28,600 $ 28,600 Advertising $ 70,800 $ 70,800 $ 75,460 Equipment purchases $ − − 67,500 Depreciation $ 19,000 $ 19,000 $ 19,000
c. Merchandise purchases are paid in full during the month following purchase. Accounts payable for merchandise purchases during March, which will be paid during April, total $180,500.
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 will total $1,040.
Required: 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. (Cash deficiency, repayments and interest should be indicated by a minus sign.)
|
Materials price and quantity variances
: Dawson Toys, Ltd., produces a toy called the Maze. The company has recently established a standard cost system to help control costs and has established the following standards for the Maze toy: Direct materials: 6 microns per toy at $0.33 per micron..
|
|
Calculate the breakeven point in units
: Lester Company manufactures a single product. Each unit sells for $15. The firm's projected costs are listed below: Variable costs per unit: Direct Material Direct Labor Variable Mfg. Calculate the Breakeven Point in Units and in Dollars. Calculate h..
|
|
Differ from the actual variable overhead cost
: Logistics Solutions provides order fulfillment services for dot.com merchants. The company maintains warehouses that stock items carried by its dot.com clients. According to the standards, what variable overhead cost should have been incurred to fill..
|
|
Describe how the write-off of a technology system
: When Burlington Norther releases first quarter earnings below those of the same period for the prior year, managemment explained the reasons behind the shortfall. Describe how the write-off of a technology system would affect the basic accounting equ..
|
|
Prepare a schedule of expected cash collections
: The president of the retailer Prime Products has just approached the company’s bank with a request for a $30,000, 90-day loan. The purpose of the loan is to assist the company in acquiring inventories. Prepare a schedule of expected cash collections ..
|
|
Overstatement and understatement of retained earnings
: Elliot Corp failed to record accrued salaries for 2013, of $2,000, for 2014 of $2,100 and for 2015 of $3,900. What is the amount of the overstatement and understatement of Retained earnings at December 31, 2016? Management has decided to switch from ..
|
|
The investment was accounted for using the equity method
: Simmons Corporation owns stock of Armstrong, Inc. Prior to 2014, the investment was accounted for using the equity method. In early 23014, Simmons sold part of its investment in Armstrong, and began using the fair value method. In 2014, Armstrong ear..
|
|
Two accounting treatments on the financial statements
: The 2012 annual report of Cisco Systems discloses that the company expenses all advertising and research and development costs, while capitalizing all software development cost. Describe the effect of these two accounting treatments on the financial ..
|
|
Prepare budgeted income statement
: Minden Company is a wholesale distributor of premium European chocolates. The May 31 inventory balance is budgeted at $24,000. d. Selling and administrative expenses for May are budgeted at $86,100, exclusive of depreciation. These expenses will be p..
|