Herbal Care Corp., a distributor of herb-based sunscreens, is ready to begin its third quarter, in which peak sales o cour. The company has requested a $40.000, 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 $53,500. 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) $ 410,000 $ 450,000 $ 570.000 $ 780,000 $ 400.000 Past experience shows that 25% of a month's sales are collected in the month of sale, 70% 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 $342,000 $ 42,500 $230,000 $ 9,800 $ 11,000 August $468,000 $ 64,000 $146,000 $ 9.800 $ 11,000 September $240,000 $ 65,000 $100,000 $ 9,800 $ 11,000 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 $270,000 d. Equipment costing $10,000 will be purchased for cash during July. e. In preparing the cash budget, assume that the $40,000 loan will be made in July and repaid in September Interest on the loan will total $1,200 Required: 1. Prepare a schedule of expected cash collections for July August, and September and for the quarter in total. Herbal Care Corp. Schedule of Expected Cash Collections July August September Quarter From accounts receivable: May sales June sales From budgeted sales: July sales August sales September sales Total cash collections 2. Prepare a cash budget, by month and in total, for the third quarter. (Cash deficiency, repayments and interest should be indicated by a minus sign.) Herbal Care Corp. Cash Budget July August September Quarter Beginning cash balance Add receipts: Collections from customers Total cash available Less cash disbursements: Merchandise purchases Salaries and wages Advertising Rent payments Equipment purchases Total cash disbursements Excess (deficiency) of cash available over disbursements Financing: Borrowings Repayments Interest Total financing Ending cash balance
