A company is negotiating with the bank for a $200,000/ 90 day/12% loan effective July 1 of the current year. If the bank grants the loan, the proceeds will be $194,000 which the company intends to use on July 1 as follows: pay accounts payable$150,000; purchase equipment $160,000; add to bank balance $28,000. the current working capital position, according to financial statements as of June 30 as follows:
cash inbank.......................................................................$20,000
receivables(net of allowance for doubtfullaccounts............ 160,000
merchandiseinvnetory....................................................... 90,000
total currentassets............................................................$270,000
accounts payable(includes accrued operatingexpense)...... 150,000
workingcapital.................................................................$120,000
These estimates have been made, which are to be used in a 3 month cash budget: sales(all accounts) for July $300,000, August $360,000 Sept$270,000 Oct $200,000 Past experience shows that 80% of the receivables, in any month will be collected in the month following the sale. 19% will be collected in the second month following the sale and the 1% will prove uncollectible. They expect to collect $120,00 of the June30 receivables in July and the remaining $40,000 in August. Cost of goods sold has averaged about 65% of sales.
Operating expenses are budgeted at $36,000 per month plus 8% ofsales. With the exception of $4,400 per month depreciation expense, all operating expenses and purchases are in account and paid in the month following their occurance.
Prepare a monthly cash budget showing estimated cash receipts and cash payments for July, Aug, and Sept. and the cash balance at the end of each month. Supporting schedules should be prepared for estimated for collections on receivables, merchandise purchases, and payments for operating expenses and of account payable for merchandise purchase.