Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Natural Beauty, Inc., a distributor of natural cosmetics, is ready to begin its third quarter, in which peak sales occur. The company has requested a

Natural Beauty, Inc., a distributor of natural cosmetics, is ready to begin its third quarter, in which peak sales occur. The company has requested a $60,000, 90-day loan from its bank to help meet cash requirements during the quarter. Because Natural Beauty has experienced difficulty in paying off its loans in the past, the banks loan officer 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 $39,000.
b.

Actual sales for the last two months and budgeted sales for the third quarter follow (all sales are on account):

May (actual) $ 380,000
June (actual) $ 340,000
July (budgeted) $ 390,000
August (budgeted) $ 450,000
September (budgeted) $ 447,000

Past experience shows that 25% of a month's sales are collected in the month of sale, 70% in the month following sale, and 2% in the second month following sale. The remainder is uncollectible.

c.

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

July August September
Merchandise purchases $ 234,000 $ 225,000 $ 268,200
Salaries and wages $ 68,000 $ 68,000 $ 58,000
Advertising $ 78,000 $ 88,000 $ 89,000
Rent payments $ 23,000 $ 23,000 $ 23,000
Depreciation $ 44,000 $ 44,000 $ 44,000

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 $204,000.

d.

Equipment costing $20,000 will be purchased for cash during July.

e.

In preparing the cash budget, assume that the $60,000 loan will be made in July and repaid in September. Interest on the loan will total $1,600.

Required:
1.

Prepare a schedule of expected cash collections for July, August, and September and for the quarter in total.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

More Books

Students also viewed these Accounting questions