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    Oneida Company: Preparation of cash budgets

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    Preparation of cash budgets (for three periods)

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    Question 2: (10 points)
    Problem 7-2A: Preparation of cash budgets (for three periods) L.O. C3, P2
    During the last week of August, Oneida Company's owner approaches the bank for an $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, $148,000 of accounts receivable, and $125,000 of accounts payable. Its budgeted sales,
    merchandise purchases, and various cash disbursements for the next three months follow:

    Budgeted Figures* September October November
    Sales $250,000 $375,000 $400,000
    Merchandise purchases 240,000 225,000 200,000
    Cash disbursements
    Payroll 20,000 22,000 24,000
    Rent 10,000 10,000 10,000
    Other cash expenses 35,000 30,000 20,000
    Repayment of bank loan 100,000
    Interest on the bank loan 3,000

    * Operations began in August; August sales were $215,000 and purchases were $125,000.
    The budgeted September merchandise purchases include the inventory increase. All sales are on account.
    Company experience is 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 for Oneida Company. (Omit the "$" sign in your
    response. Leave no cells blank - be certain to enter "0" wherever required.)
    ONEIDA COMPANY
    Cash Budget
    For September, October, and November
    September October November
    Beginning balance $ $ $
    Cash receipts
    Receipts from bank loan
    Total cash available
    Cash disbursements
    Payroll
    Rent
    Other expenses
    Repayment on bank loan
    Interest on bank loan
    Total cash disbursements
    Ending cash balance $ $ $

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    Solution Preview

    Problem 7-2A: Preparation of cash budgets (for three periods) L.O. C3, P2
    During the last week of August, Oneida Company's owner approaches the bank for an $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, $148,000 of accounts receivable, and $125,000 of accounts payable. Its budgeted sales, merchandise purchases, and various cash disbursements for the next three months follow:

    Budgeted Figures* September October ...

    Solution Summary

    This solution is comprised of a detailed explanation to prepare cash budgets for Oneida Company.

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