- Problem 4 Cash Budget Century Outlet Is An Independently Owned Major Department Store Century Outlet Has An Agreement 1 (156.59 KiB) Viewed 38 times
Problem 4 - Cash Budget Century Outlet is an independently owned major department store. Century outlet has an agreement with BamBam Bank that allows it to borrow a line of credit that requires a minimum balance of $8,000 in the checking account at the end of each month. When the balance is lower than $8,000, the bank automatically extends the line of credit in multiplies of $1,000. Century Outlet also has to repay the loan in multiples of $1,000 and 1% monthly interest on the entire loan balance at the end of the month following the loan. Below is the cash receipts and disbursements data apply to the fourth quarter: O Estimated beginning cash balance $8,800 • Estimated cash sales: : October November $16,000 $30,000 Sales on account: Actual July $100,000 August $125,000 September $123,000 Estimated October $135,000 November $120,000 Projected cash collection of sales on account is estimated to be 63% in the month following the sale, 28% in the second month following the sale, and 5% in the third month following the sale. The 4% beyond the third month following the sale is determined to be uncollectible. In addition, the chain is scheduled to receive $10,000 cash on a note receivable in October. Inventory purchases that happen are as follows: Actual September $120,000 Estimated October $100,000 November $128,000 Cash disbursement for inventory are made in the month following the purchase using an average cash discount 2% for timely payment. Monthly cash disbursements for operating expenses during October, November, and December are estimated to be $38,000, $41,000 and $46,000 respectively. Required: 1. Prepare the cash budget for Century Outlet for the month of October and November 2. Suppose you are preparing a budgeted balance sheet as of October 31, please show the balance for the cash account.