Question

During the last week of August, Oneida Company’s owner approaches the bank for a $101,000 loan to be made on September 2 and repaid on November 30 with annual interest of 16%, for an interest cost of $4,040. The owner plans to increase the store’s inventory by $60,000 during September and needs the loan to pay for inventory acquisitions. The bank’s loan officer needs more information about Oneida’s ability to repay the loan and asks the owner to forecast the store’s November 30 cash position. On September 1, Oneida is expected to have a $4,500 cash balance, $131,400 of net accounts receivable, and $100,000 of accounts payable. Its budgeted sales, merchandise purchases, and various cash disbursements for the next three months follow. Budgeted Figures* September October November Sales $ 230,000 $ 475,000 $ 460,000 Merchandise purchases 225,000 200,000 196,000 Cash payments Payroll 19,900 21,900 24,600 Rent 11,000 11,000 11,000 Other cash expenses 34,400 29,800 21,400 Repayment of bank loan 101,000 Interest on the bank loan 4,040 *Operations began in August; August sales were $180,000 and purchases were $100,000. The budgeted September merchandise purchases include the inventory increase. All sales are on account. The company predicts that 27% of credit sales is collected in the month of the sale, 44% in the month following the sale, 22% in the second month, 6% in the third, and the remainder is uncollectible. Applying these percents to the August credit sales, for example, shows that $79,200 of the $180,000 will be collected in September, $39,600 in October, and $10,800 in November. All merchandise is purchased on credit; 90% of the balance is paid in the month following a purchase, and the remaining 10% is paid in the second month. For example, of the $100,000 August purchases, $90,000 will be paid in September and $10,000 in October. Required: Prepare a cash budget for September, October, and November. (Round your final answers to the nearest whole dollar.)

Answer 1

working
	September	October	November
Sales	$230,000	475000	460000
Collection of accounts receivable	$79,200	39600	10800
Collection of Sep sales (230000*27%,44%,22%)	$62,100	$101,200	$50,600
Collection of Oct sales (475000*27%,44%))		128250	209000
Collection ofNov sales			124200
Total cash collections	141300	269050	394600
Cash disburments
	January	February	March
Payment of accounts payable	90000	10000
Payment of Sep purchases (225000*90%,10%)		202500	22500
Payment of Oct purchases (200000*90%)			180000
Total cash disbursements	90000	212500	202500
Cash Budget
	January	February	March
Beginning cash balance	4500	91500	85350
Total receipts	141300	269050	394600
Subtotal	145800	360550	479950
Less: disbursements
Payment for inventory	90000	212500	202500
Paymrnt of payroll	19900	21900	24600
Payment of Rent	11000	11000	11000
Other cash expenses	34400	29800	21400
Total cash disbursements	155300	275200	259500
Cash excess (deficiency) before financing	-9500	85350	220450
Financing:
Borrowing	101000
Loan principal repaid			-101000
Loan interest paid			-4020
Ending cash balance	91500	85350	115430
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