Problem2 Lupdidu president of Basic Masic has just approache

Problem2: Lupdidu, president of Basic Masic, has just approached the company\'s bank with a cna eries of loans. The purpose of the loans is to assist the company in request for a series of loans. The purpose inventories in support of peak Aperil sales. Since the company has had some difficulty in paying whether off its loans in the past, the loan officer has asked for a cash budget to help determine the loan should be made. The following dats are available for the mooths which the loan will be used: a On April I, the start of the loan period, the cash balance will be $15000. Accounts on April I will total $164 000, of which $138 000 will be collected during receivable April and the remainder will be collected during May Past experience shows that 20% of the month\'s sales are collected in the month of sale, 55% in the month following sale, and 25% in the second month folowing sale. Bad debts are negligible. Budgeted sales and expenses for the period follow, these numbers are taken directly from the company\'s budgeted income statement June Notes: April- May 5280 000,00 $340 000,00 $260 $196 000,00 $ 10 000,00 Sales 000,00 Merchandise purchases S?87 000,00 | si30 $7000.00 | $11 000.00 | Includes adjustment of $2000 every month $14 000 $14000 $14000 Lease Advertising Includes an a cost to be paid in September of $10000 in every month $70 000 $8 000 $20 000 $20 000 $20000 $75 000 $40 000 Equipment purchasesS0 d. Merchandise purchases are paid in the following way one half of a particular month\'s purchases are paid that month and another half is paid during the month following purchase. Accounts payable for merchandise purchases on March 31, total $49 000. e. In preparing the cash budget, assume that the $40000 loan will be made in April and repaid in June, another loan of $45 000 will be made in May and also repaid in June. Interest rate on the loans is 2% month on outstanding loan amount during the month. Assume that all borrowings are made in the beginning of a month and all repayments are made at the end of a month. All accrued interest is repaid only when the whole principal is repaid Required: . Prepare a schedule of budgeted cash collections for April, May, and June and for the 2. Prepare a schedule of payments for merchandise purchases for April, May, and June and three months in total. What is the A/R balance at the end of June? for the three months in total. What is the A/P balance for merchandise purchases at the end of June? Prepare a cash budget, by month and in total, for the three-month period. 3. 4. If the company needs a minimum cash balance of S5\'000 to start each month, can the loan be repaid as planned? Explain. 5. Refer to the original data, assume that a company will suffer bad debts due to deteriorating economic situation and the company\'s cash collection pattern would shift as

Solution

April ($)

0

alternatively one can assume that interest is non-compoundable interest then ans will be

Particulars APRIL MAY JUNE TOTAL

April Interest 40000*2% = 800 0 0 0 0   

May (40000+45000)*2% = 1700 0 0 0 0   

June (40000+45000)*2% = 1700 0 0 -4200 -4200

CLosing cash balance 15000 29500 37800 37800 (Alternative Answer)

CLosing balance of A/R As on June

Sales Proceeds

For Month of May will be receivable in july = 340000*25% = 85000

For the month of June will be receivable in July and August 55%, 25%

260000*55% = 143000

260000*25%= 65000

Therefore closing balance of AR as on June (65000+143000+85000) = 293000 (Answer)

Particulars	April ($)	May ($)	June ($)	Total ($)
Opening cash balance	15000	15000	29500	15000
Opening Account receivables realised	138000	26000	0	164000
Loan Received	40000	45000	0	85000
Sales Proceeds Incash 20%, 55%, 25% :-
April Month ( 280,000)	56000	154000	70000	280000
May Month (340,000)	0	68000	187000	255000
June Month (260,000)	0	0	52000	52000
Merechandise payment 50%, 50% :-
April month ( 196,000)	-98000	-98000	0	-196000
May Month ( 187,000)	0	-93500	-93500	-187000
June Month (130,000)	0	0	-65000	-65000
Opening Balance of Accounts payable paid in april Month (assumed as per co\'s Policy)	-49000	0	0	-49000
Lease Payments	-14000	-14000	-14000	-42000
Payroll ( Adjusted with $2000 each Month)	-8000	-5000	-9000	-22000
Advertisments ( Adjusted with $10000 each month)	-65000	-60000	-30000	-155000
Equipment cost	0	-8000	0	8000
Interest on Loan (@2% per Month on Outstanding balance):-
April- 40000 *2% =800	0	0	0	0
May (40800+45000)*2% = 1716	0	0	0	0
June (40800+45000+1716)*2% = 1750	0	0	0	0
Total Interest will be 800+1716+1750	0	0	-4266	-4266
Repayment of Principle	0	0	-85000	-85000
Closing cash balance ( Answer)	15000	29500	37734	37734