value: 9.00 points Abebe Helton owns a small restaurant in New York City. Ms. He
ID: 2585682 • Letter: V
Question
value: 9.00 points 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 $53,000. Budgeted cash and credit sales for June are $143,000 and $598,000 respectively. Credit sales are made through Visa and MasterCard and are collected rapidly. Seventy 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 $38,000 cash balance before the interest payment. Her annual interest rate is 9 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 b. Determine the amount of interest expense the restaurant will report on the June pro forma income statement. (Leave no cells blank- be certain to enter "O" wherever required.) nterest expense c. What amount will the restaurant report as interest expense on the July pro forma income statement? (Leave no cells blank- be certain to enter "o wherever required. Round your answer to the nearest dollar amount.) nterest expenseExplanation / Answer
a) For calculating the amount to be borrowed by Ms. Helton for the month of June, We need to prepare a cash flow of June which is shown as follows:- (Amount in $)
Thus the amount to be borrowed for June is $140,400.
b) As the amount is borrowed on the last day of June, there will be no interest expense for the month of June. Therefore the amount of interest expense the restaurent will report on the June proforma Income statement will be Zero
Interest Expense = 0
c) The amount borrowed on the last day of June will be paid and accrued on last day of july. The interest expense is calculated as follows:-
Interest Expense = Amount borrowed*Interest rate*1/12
= $140,400*9%*1/12 = $1,053
Thus the amount of interest expense the restaurent will report on the July proforma Income statement will be $1,053.
Interest Expense = $1,053
1) Budgeted Cash sales for June 143,000 2) Collection from Accounts receivables for May 53,000 3) Collection from Accounts receivables for June (70% of credit sales) 418,600 4) Total Cash receipts for June(1+2+3) 614,600 5) Total Cash Payments for June 717,000 6) Minimum cash Balance required 38,000 7) Amount to be borrowed (5+6-4) 140,400Related Questions
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