Problem
During the last week of August, Apache Arts Company's owner approaches the bank for an $100,000 loan to be made on September 2 and repaid on November 30 with annual interest of 17%, for an interest cost of $4,250. The owner plans to increase the store%u2019s inventory by $60,000 during September and needs the loan to pay for inventory acquisitions. The bank%u2019s loan officer needs more information about Apache Arts%u2019 ability to repay the loan and asks the owner to forecast the store%u2019s November 30 cash position. On September 1, Apache Arts is expected to have a $4,000 cash balance, $145,000 of 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
|
$
|
280,000
|
$
|
395,000
|
$
|
460,000
|
|
Merchandise purchases
|
|
230,000
|
|
205,000
|
|
192,000
|
|
Cash disbursements
|
|
|
|
|
|
|
|
Payroll
|
|
20,300
|
|
22,000
|
|
24,200
|
|
Rent
|
|
11,000
|
|
11,000
|
|
11,000
|
|
Other cash expenses
|
|
34,700
|
|
30,600
|
|
20,650
|
|
Repayment of bank loan
|
|
|
|
|
|
100,000
|
|
Interest on the bank loan
|
|
|
|
|
|
4,250
|
*Operations began in August; August sales were $265,000 and purchases were $125,000.
The budgeted September merchandise purchases include the inventory increase. All sales are on account. The company predicts that 28% of credit sales is collected in the month of the sale, 43% in the month following the sale, 23% in the second month, 5% in the third, and the remainder is uncollectible. Applying these percents to the August credit sales, for example, shows that $113,950 of the $265,000 will be collected in September, $60,950 in October, and $13,250 in November. All merchandise is purchased on credit; 60% of the balance is paid in the month following a purchase, and the remaining 40% is paid in the second month. For example, of the $125,000 August purchases, $75,000 will be paid in September and $50,000 in October.
Required:
Prepare a cash budget for September, October, and November for Apache Arts Company.
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.