Herbal Care Corp., a distributor of herb-based sunscreens, is ready to begin its third quarter, in which peak sales occur. The company has requested a $55,600, 90-day loan from its bank to help meet cash requirements during the quarter. Since Herbal Care has experienced difficulty in paying off its loans in the past, the loan officer at the bank has asked the company to prepare a 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 $33,000. b. Actual sales for the last two months and budgeted sales for the third quarter follow (all sales are on account): May (actual) June (actual) July (budgeted) August (budgeted) September (budgeted) $230,000 $290,000 $560,000 $710,000 $450,000 Past experience shows that 25% of a month's sales are collected in the month of sale, 69% in the month following sale, and 3% in the second month following sale. The remainder is uncollectible. c. Budgeted merchandise purchases and budgeted expenses for the third quarter are given below: Merchandise purchases Salaries and wages Advertising Rent payments Depreciation July $238,000 $48,000 $148,000 $8,800 $8,800 August $350,000 $40,000 $130,000 $7,300 $8,800 September $156,000 $21,000 $72,000 $8,200 $8,800 Merchandise purchases are paid in full during the month following purchase. Accounts payable for merchandise purchases on June 30, which will be paid during July, total $209,000. d. Equipment costing $8,800 will be purchased for cash during July. e. In preparing the cash budget, assume that the $55,600 loan will be made in July and repaid in September. Interest on the loan will total $1,070. Requirement 1: Prepare a schedule of expected cash collections for July, August, and September and for the quarter in total. (Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response) Month July August September Quarter From accounts receivable: May sales June sales From budgeted sales: July sales August sales September sales Total cash collections Requirement 2: Prepare a cash budget, by month and in total, for the third quarter. (Show deficiencies, and total financing preceded by a minus sign wherever appropriate. Enter all other amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.) Month July August September Quarter $ Total cash available Total disbursements Excess (deficiency) of receipts over disbursements Total financing Cash balance, ending Requirement 3: If the company needs a minimum cash balance of $10,000 to start each month, can the loan be repaid as planned? Yes
