During the last week of August, Oneida Company’s owner approaches the bank for a \(100,000 loan to be made on September 2 and repaid on November 30 with annual interest of 12%, for an interest cost of \)3,000. The owner plans to increase the store’s inventory by \(80,000 during September and needs the loan to pay for inventory acquisitions. The bank’s loan officer needs more information about Oneida’s ability to repay the loan and asks the owner to forecast the store’s November 30 cash position. On September 1, Oneida is expected to have a \)5,000 cash balance, \(159,100 of net accounts receivable, and \)125,000 of accounts payable. Its budgeted sales, merchandise purchases, and various cash payments for the next three months follow.
The budgeted September merchandise purchases include the inventory increase. All sales are on account. The company predicts that 25% of credit sales is collected in the month of the sale, 45% in the month following the sale, 20% in the second month, 9% in the third, and the remainder is uncollectible. Applying these percents to the August credit sales, for example, shows that \(96,750 of the \)215,000 will be collected in September, \(43,000 in October, and \)19,350 in November. All merchandise is purchased on credit; 80% of the balance is paid in the month following a purchase, and the remaining 20% is paid in the second month. For example, of the \(125,000 August purchases, \)100,000 will be paid in September and $25,000 in October. Required Prepare a cash budget for September, October, and November. Show supporting calculations as needed.
