Answer:
a. Compute the amount of funds Ms. Bragg needs to borrow for June.
b. Determine the amount of interest expense the restaurant will report on the June pro forma income statement.
c. What amount will the restaurant report as interest expense on the July pro forma income statement?
Explanation:
beginning balance AR $53,000
cash sales $148,000
credit sales $586,000 (70% collected in current month and 30% collected next month)
cash outflows = ($713,000)
minimum desired cash balance $31,000
Cash balance June 30 = $31,000 (beginning cash balance) + $53,000 (collected from May's AR) + $148,000 (cash sales) + $410,200 ($586,000 x 70%) = $642,200
Ending cash balance + outflows = $31,000 + $713,000 = $744,000
June's cash deficit = $744,000 - $642,200 = $101,800
interest expense due on July 31 = $101,800 x 9% x 1/12 = $763.50
