During the last week of March, Harlan Stereos owner approaches the bank for an $80,000 loan to

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During the last week of March, Harlan Stereo€™s owner approaches the bank for an $80,000 loan to be made on April 1 and repaid on June 30 with annual interest of 12%, for an interest cost of $2,400. The owner plans to increase the store€™s inventory by $120,000 in April and needs the loan to pay for inventory acquisitions. The bank€™s loan officer needs more information about Harlan Stereo€™s ability to repay the loan and asks the owner to forecast the store€™s June 30 cash position. On April 1, Harlan Stereo is expected to have a $6,000 cash balance, $270,000 of accounts receivable, and $200,000 of accounts payable. Its budgeted sales, merchandise purchases, and various cash disbursements for the next three months follow.

During the last week of March, Harlan Stereo€™s owner approaches

The budgeted April merchandise purchases include the inventory increase. All sales are on account. The company predicts that 25% of credit sales is collected in the month of the sale, 45% in the month following the sale, 20% in the second month, 9% in the third, and the remainder is uncollectible. Applying these percents to the March credit sales, for example, shows that $162,000 of the $360,000 will be collected in April, $72,000 in May, and $32,400 in June. All merchandise is purchased on credit; 80% of the balance is paid in the month following a purchase and the remaining 20% is paid in the second month. For example, of the $200,000 March purchases, $160,000 will be paid in April and $40,000 in May.

Required
Prepare a cash budget for April, May, and June for Harlan Stereo. Show supporting calculations asneeded.

Cash Budget
A cash budget is an estimation of the cash flows for a business over a specific period of time. These cash inflows and outflows include revenues collected, expenses paid, and loans receipts and payment.  Its primary purpose is to provide the...
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Managerial Accounting

ISBN: 978-0073379586

2010 Edition

Authors: John J. Wild, Ken W. Shaw

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