Master Budget:

The company has an agreement with a bank that allows it to borrow in increments of $2,000 at the beginning of each month, up to a total loan balance of $280,000. The interest rate on these loans is 2% per month and is not a compound interest (simple interest). At the end of the quarter, the company would pay the bank all of the accumulated interest on the loan and as much as of the loan as possible, while still retaining at least $12, 000 in cash balance. Required: Using well-formatted and labeled spreadsheets, prepare a master budget for the three-month period ending June 30. Include the following detailed budgets:

(1) a. A sales budget by month and in total.

b. A schedule of expected cash collections from sales, by month and in total.

c. A merchandise purchases budget in units and in dollars. Show budget by month and in total.

d. A schedule of expected cash disbursements for merchandise purchases, by month and in total.

(2) Prepare a cash budget, showing budget by month and in total.

(3) Prepare a budgeted income statements for the three-month period ending June 30. Use the contribution margin approach.

(4) Prepare a budgeted balance sheet as of June 30.

(5) Using MS-Document, write a one page memo to the Chief Financial Officer (CFO) of Polo Wears Corporation in which you summary the master budget results and make any recommendation as to whether the company should continue with it is current borrowing arrangements. In your memo comment on the potential large accounts receivable balance in June (will this be a problem for the company, why or why not?). Other ideas and suggestions you may have to improve the operations.

(6) Provide information on the company's strengths or weakness based on pro forma income statement and balance sheet.