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Januari is the first month ini year the third month is​

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L&P Merchandising & More, Michael Stona

a) Schedule of Budgeted Cash Collections for October to December 2020:

                                        October     November    December  Quarter Total

Cash Sales                     $132,680     $105,900     $216,000    $454,580

Credit Sales:

 60% month of sale     $432,000     $390,000    $480,000   $1,302,000

    less 5% discount         (21,600)        (19,500)       (24,000)         (65,100)

 30% month following $180,000     $216,000     $195,000       $591,000

 10% second month      $48,000      $60,000       $72,000       $180,000

Other cash collections:

 Sale of Motor Vehicle                      $80,000       $30,000       $110,000

 Sale of investments    $480,000                                              $480,000

 Investment interest      $54,000                                               $54,000

 Rental & Safety Deposit                 $135,000       $45,000    $180,000

Total Collections        $1,305,080   $967,400   $1,014,000 $3,286,480

b) Schedule of Expected Cash Disbursements for Purchases on Account for the quarter to December 31, 2020:

                                       October    November    December  Quarter Total

Credit Purchases:

 80% purchase month $384,000   $320,000     $400,000   $1,104,000

  less 3% cash discount   (11,520)        (9,600)         (12,000)        (33,120)

 20% following month     72,000       96,000          80,000       248,000

Total disbursement     $444,480   $406,400      $468,000   $1,318,880

c) Cash Budget:

                                     October    November    December  Quarter Total

Beginning balance    ($138,000)   (220,400)    (602,400)

Cash Receipts         $1,305,080    $967,400   $1,014,000    $3,286,480

Less purchases        ($444,480)  ($406,400)  ($468,000)    ($1,318,880)

Less fixed expenses  (135,000)      (135,000)     (135,000)       (405,000)

Less other expenses  (58,000)       (58,000)       (58,000)        (174,000)

Less Rea Equipment                                           (240,000)      (240,000)

Wages & Salaries     (245,000)     (245,000)     (245,000)      (735,000)

Retroactive wages   (380,000)      (380,000)                           (760,000)

Cash balance            (95,400)       (477,400)     (734,400)

Minimum balance   (125,000)        (125,000)     (135,000)

Bank Overdraft      (220,400)       (602,400)     (859,400)

d) Will the business meet the required minimum cash balance of $125,000?

No.

e) Three steps other than borrowing to improve cash flow:

1) The volume of Sales must be increased.

2) Trade terms should be improved with customers and suppliers.

3) Expenses must be controlled to reduce outlay.

a) Sales Budget

Month           Cash Sales    Sales on Account   Purchases on Account

August              $121,000         $480,000                  $390,000

September       $95,500         $600,000                  $360,000

October           $132,680         $720,000                  $480.000

November      $105,900         $650,000                  $400,000

December      $216,000         $800,000                  $500,000

b) Accounts Receivables' credit terms are 5/30, net 90 days.  This means that cash discounts of 5% are allowed for settlements within 30 days, and the maximum credit period is 90 days.

c) Sale of Motor Vehicle:

Cost of Vehicle            $650,000

less Acc. Depreciation $475,000

Book Value                   $175,000

Profit on sale                 $25,000

Selling Price                 $200,000

40% of $200,000 = $80,000

Quarter receipts = $30,000 ($200,000 - 80,000) /4

c) Safety Deposit is equal to two months rental = $540,000/12 * 2 = $90,000.

First Rental + Safety Deposit = $135,000 ($540,000/12 * 3)

d) A cash budget helps management to forecast its cash collections and disbursements.

The computation of the accrued principal and coupon payment is shown below:-

The computation of the accrued principal and coupon payment is given below:-

                                     Accrued principal     Coupon payment

First 6 months                    $1,020                              $15

                                   $1,000 × (1 + 0.02)       ($1,000 × 3% × 1 ÷ 2)

Second 6 months              $1,050.60                         $15.759

                                    $1,020 × (1 + 0.03)       ($1,050.60 × 3% × 1 ÷ 2)

Third 6 months                     $1,061.106                       $15.92

                                     ($1,050.60 × (1 + 0.01))  ($1,061.106 × 3% × 1 ÷ 2)

Fourth 6 months                   $1,082.32                         $16.23

                                     ($1,061.106 × (1 + 0.02))    ($1,082.32 × 3% × 1 ÷ 2)

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