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PROBLEM 8-25 Schedule of Expected Cash Collections; Cash Budget [L08-2, LO8-8 Herbal Care Corp., a distributor of herb-based sunscreens, is ready to begin its third

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PROBLEM 8-25 Schedule of Expected Cash Collections; Cash Budget [L08-2, LO8-8 Herbal Care Corp., a distributor of herb-based sunscreens, is ready to begin its third which peak sales occur. The company has requested a $40.000, 90-day loan from its banktei meet cash requirements during the quarter. Since Herbal Care has experienced difficulty in off its loans in the past, the loan officer at the bank has asked the company to prepare a h hud for the quarter. In response to this request, the following data have been assembled: quarter, paying get On July 1, the beginning of the third quarter, the company will have a cash balance of $44 of $4,500 b. Actual sales for the last two months and budgeted sales for the third quarter follow (all sle are on account) May (actual) $250,000 $300,000 $400,000 $600,000 $320,000 July (budgeted) August (budgeted) 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. Budgeted merchandise purchases and budgeted expenses for the third quarter are given below c. July August September Merchandise purchases Salaries and wages Advertising Rent payments $240,000 $350,000 $175,000 $45,000 $50,000 $40,000 .. $130,000 $145,000 $80,000 $9,000 $9,000 $9,000 $10,000 $10,000 $10,000 preciati Merchandise purchases are paid in full during the month following purchase. Accounts pay able for merchandise purchases on June 30, which will be paid during July, total $180,000. Equipment costing $10,000 will be purchased for cash during July In preparing the cash budget, assume that the S40,000 loan will be made in July and repaid in September. Interest on the loan will total $1,200 d. Required 1. Prepare a schedule of expected cash collections for July, August, and September a and for the quarter in total Prepare a cash budget, by month and in total, for the third quarter If the company needs a minimum cash balance of $20,000 to start each month, can the repaid as planned? Explain

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