Determining amount to borrow and pro forma statement balances At

Determining amount to borrow and pro forma statement balances Athena Sudsberry owns a small restaurant in New York City. Ms. Sudsberry provided her accountant with the following summary information regarding expectations for the month of June. The balance in accounts receivable as of May 31 is $60,000. Budgeted cash and credit sales for June are $150,000 and $600,000, respectively. Credit sales are made through Visa and MasterCard and are collected rapidly. Eighty percent of credit sales is collected in the month of sale, and the remainder is collected in the following month. Ms. Sudsberry’s suppliers do not extend credit. Consequently, she pays suppliers on the last day of the month. Cash payments for June are expected to be $700,000. Ms. Sudsberry has a line of credit that enables the restaurant to borrow funds on demand; however, they must be borrowed on the last day of the month. Interest is paid in cash also on the last day of the month. Ms. Sudsberry desires to maintain a $30,000 cash balance before the interest payment. Her annual interest rate is 9 percent.
a. Compute the amount of funds Ms. Sudsberry needs to borrow for June.
b. Determine the amount of interest expense the restaurant will report on the June pro forma income statement.
c. What amount will the restaurant report as interest expense on the July pro forma income statement?

Accounts Receivable
Accounts receivables are debts owed to your company, usually from sales on credit. Accounts receivable is business asset, the sum of the money owed to you by customers who haven’t paid.The standard procedure in business-to-business sales is that...
Line of Credit
A line of credit (LOC) is a preset borrowing limit that can be used at any time. The borrower can take money out as needed until the limit is reached, and as money is repaid, it can be borrowed again in the case of an open line of credit. A LOC is...


  • Access to 2 Million+ Textbook solutions
  • Ask any question from 24/7 available



Get help from Managerial Accounting Tutors
Ask questions directly from Qualified Online Managerial Accounting Tutors .
Best for online homework assistance.