The president of the retailer Prime Products has just approached the company’s bank with a request…

The president of the retailer Prime Products has just approached
the company’s bank with a request for a $69,000, 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:

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  1. On April 1, the start of the loan period, the cash balance will
    be $22,200. Accounts receivable on April 1 will total $176,400, of
    which $151,200 will be collected during April and $20,160 will be
    collected during May. The remainder will be uncollectible.

  2. 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% is 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
  1. Merchandise purchases are paid in full during the month
    following purchase. Accounts payable for merchandise purchases
    during March, which will be paid in April, total $180,500.

  2. In preparing the cash budget, assume that the $69,000 loan will
    be made in April and repaid in June. Interest on the loan will
    total $1,040.


1. Calculate the 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