Problem 8 Herbal Care Corp., a distributor of herb-based sunscreens, is ready to begin its third quarter, in which peak sales occur. The company has requested a $20,000, 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 $24,000 b. Actual sales for the last two months and budgeted sales for the third quarter follow (all sales are on account): May (actual... $200,000 June (actual).. 250,000 August (budged.375,000 September (budgeted220,000 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 exp s for the third quarter are given b elow Salaries and wages... Advertising Rent payment. Depreciation July August September Merchandise purchases. $210,000 $218,750 S120,313 52,000 54,000 53,000 ng.65,000 72,000 40,000 6,000 7,000 6,000 6,000 7,000 7,000 Merchandise purchases are paid in full during the month following purchase. Accounts payable for merchandise purchases on June 30, which wil be paid during July, total $157,500 d. Equipment costing $21,000 will be purchased for cash during July e. In preparing the cash budget, assume that the $20,000 loan wl be made in July and repaid in September. Interest on the loan will total S600 equire 1. Prepare a schedule of expected cash collections for July, August, and September and for the quarter in total 2. Prepare a cash budget, by month and in total, for the third quarter 3. If the company needs a minimum cash balance of $10,000 to start each month, can the loan be repaid as planned? Explain