Problem 7-1 Preparing a Schedule of Expected Cash Collections and a Cash Budget (LO2-CC5, 7, 12) Janus Products, Inc. is a merchandising company that sells binders, paper, and other school supplies. The company is planning Its cash needs for the third quarter. In the past, Janus Products has had to borrow money during the third quarter to support peak sales of back-to-school materials, which occur during August. The following Information has been assembled to assist in preparing a cash budget for the quarter: a. Budgeted monthly absorption costing Income statements for July to October are as follows: July $46,888 26,400 19,600 August $76,000 44,400 1,600 September $56,888 32,480 23,600 October $51,888 29,480 1,600 Sales Cost of goods sold Gross margin Selling and administrative expenses: Selling expense Administrative expenses Total selling and administrative expenses Net operating income 9,888 5,950 14,95 $ 4,650 12,900 7,800 20,700 $10,900 9,180 6,700 15,800 $ 7,800 7,900 6,500 14,400 $ 7,200 *Includes $2,300 depreciation each month. b. Sales are 20% for cash and 80% on credit. c. Credit sales are collected over a three-month period, with 10% collected in the month of sale, 70% In the month following sale, and 20% In the second month following sale. May sales totalled $36,000, and June sales totalled $42,000. d. Inventory purchases are paid for within 15 days. Therefore, 50% of a month's Inventory purchases are paid for in the month of purchase. The remaining 50% are paid in the following month. Accounts payable for Inventory purchases at June 30 total $14,700. e. The company maintains its ending Inventory levels at 75% of the cost of the merchandise to be sold in the following month. The merchandise Inventory at June 30 is $21,000. f. Land costing $4,800 will be purchased in July. g. Dividends of $1,300 will be declared and paid in September. h. The cash balance on June 30 is $8,600; the company must maintain a cash balance of at least this amount at the end of each month. 1. The company has an agreement with a local bank that allows it to borrow In Increments of $1,000 at the beginning of each month, up to a total loan balance of $40,000. The Interest rate on these loans is 1% per month, and for simplicity, we will assume that Interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter. Required: 1. Prepare a schedule of expected cash collections for July, August, and September and for the quarter in total. JANUS PRODUCTS, INC. Schedule of Expected Cash Collections July August September Quarter Cash sales Credit sales: May June July August September Total cash collections 2. Prepare the following for merchandise Inventory: a. A merchandise purchases budget for July, August, and September. JANUS PRODUCTS, INC. Merchandise Purchases Budget July August September Total needs b. A schedule of expected cash disbursements for merchandise purchases for July, August, and September and for the quarter in total. Quarter JANUS PRODUCTS, INC. Schedule of Expected Cash Disbursements July August September Accounts payable, June 30 July purchases August purchases September purchases Total cash disbursements 3. Prepare a cash budget for July, August, and September and for the quarter In total. (Roundup "Borrowing" and "Repayments" answers to the nearest whole dollar amount. Any "Repayments" and "Interest" should be indicated by a minus sign. Leave no cells blank - be certain to enter "O" wherever required.) JANUS PRODUCTS, INC. Cash Budget For the Quarter Ended September 30 July August September Quarter Total cash available Deduct: Disbursements: Total disbursements Excess (deficiency) of cash available over disbursements Financing: Total financing