Problem 2 Finacan Company has budaeted sales revenues as follows: June July Credit sales $54.000 $58.000 Cash sales 36.000 102 000 Total sales =160.000 August $36.000 78.000 to 24.AAC LA000 Past experience indicates that 60% of the credit sales will be collected in the month of sale and the remaining 40% will be collected in the following month. Purchases of inventory are all on credit and 50% is paid in the month of purchase and 50% in the month following purchase. Budgeted inventory purchases are: June July August $120.000 100.000 42.000 Other cash disbursements budgeted: (a) selling and administrative expenses of $19,000 each month, (b) dividends of $41,400 will be paid in July, and (c) purchase of a computer in August for $12,000 cash. The company wishes to maintain a minimum cash balance of $20,000 at the end of each month. The company borrows money from the bank at 9% interest if necessary to maintain the minimum cash balance. Borrowed money is repaid in months when there is an excess cash balance. The beginning cash balance on July 1 was $20,000. Assume that borrowed money this case is for one month. Instructions Prepare a cash budget for the months of July. Prepare separate schedules for expected collections from customers and expected payments for purchases of inventory. Solution Schedule of Expected Collections from Customers Credit sales June July August Total collections Schedule of Expected Pavments for Purchase of Inventory Inventory purchases July June Julv August Total payments FINAGAN COMPANY Cash Budaet Iml Beginning cash balance Add: Receipts Total receipts Total available cash Less: Disbursements MOMITI Total disbursements Excess (deficiency) of available cash over disbursements Financina Add: Less: Ending cash balance