Abebe Helton owns a small restaurant in New York City. Ms. Helton provided her a

Question

Abebe Helton owns a small restaurant in New York City. Ms. Helton provided her accountant with the following summary information regarding expectations for the month of June. The balance in accounts receivable as of May 31 is $55,000. Budgeted cash and credit sales for June are $147,000 and $588,000 respectively. Credit sales are made through Visa and MasterCard and are collected rapidly. Sixty percent of credit sales is collected in the month of sale, and the remainder is collected in the following month. Ms Helton's suppliers do not extend credit. Consequently, she pays suppliers on the last day of the month Cash payments for June are expected to be $717,000. Ms. Helton has a line of credit that enables the restaurant to borrow funds on demand; however, they must be borrowed on the last day of the month Interest is paid in cash also on the last day of the month. Ms. Helton desires to maintain a $32,000 cash balance before the interest payment. Her annual interest rate is 11 percent. Required a. Compute the amount of funds Ms. Helton needs to borrow for June. (Leave no cells blank - be certain to enter "O" wherever required.) ount to be borrowed

Explanation / Answer

Details Amt $ Cash Collections in june m Cash sales in June                147,000 Credit Sale in June                  588,000 n Collcetion fron June sales @60%                  352,800 o AR collection in June( beginning balance)                   55,000 Net Cash Collections =m+n+o=                554,800 Less Purchase Payments June                (717,000) Cash Shortfall in June end              (162,200) Required cash balance at month end=                   32,000 a Funds needed to be borrowed =                194,200 b Interest rate is 11% pa As the Fund is borrowed on the last day , no   interest should be recognize for June. c Assuming the interest expense in Jul for June   borrowing is asked for. Borrowed amount $ 194,200 So Interest for 31 days=194200*0.11*31/365= $           1,814.31

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.