Herbal Care Corp., a distributor of herb-based sun screens, is ready to begin its third quarter, in which pick sales occur. The company has requested a Tk. 40,000 three-month loan from its bank to help meet cash requirements during the quarter. Since Herbal Care has experienced difficulty in paying off its loan in past, loan officer at the bank has asked the company to prepare cash budget for the quarter. In response to this request, the following data have been assembled:

a. On July 1, the beginning of the third quarter, the company will have a cash balance of Tk. 44,500.

b. Expected cash collection from client against credit sale for the quarter follow:

MONTH EXPECTED COLLECTION

July Tk 317,500

August Tk 439,000

September Tk 512,000

c. Budgeted merchandise purchases and expenses for the third quarter are given below:

Merchandise purchase Tk.240,000 Tk.350,000 Tk.175,000

Salary and wages 45,000 50,000 40,000

Advertising 130,000 145,000 80,000

Rent payment 9,000 9,000 9,000

Depreciation 20,000 20,000 20,000

Merchandise purchases are paid in full during the month following purchase. Accounts payable for merchandise purchases on June 30, which will be paid in July, total Tk.180,000. Other cash related operating expenses are paid during the month when they are incurred.

d. Equipment costing Tk. 10,000 will be purchased for cash during July.

e. In preparing the cash budget, assume that the Tk.40,000 loan will be made in July and repaid in September along with three months interest @12% annually.

Requirements:

(a) Prepare a cash budget, by month and in total, for the third quarter.

(b) If the company maintains a minimum cash balance of Tk 20,000 at the end of each month can the loan be repaid as planned? Explain.