Question Two

Abu Dhabi Products, Inc., is a merchandising company that sells school supplies. The

company is planning its cash needs for the third quarter. In the past, Abu Dhabi Products

had to borrow money during the third quarter to support peak sales of back$-$to$-$school

materials, which occurs during August. The following information has been assembled

to assist in preparing a cash budget for the quarter:

a$.$ The Total cash collections and disbursement for purchases are as follows $($All

amounts are in dollars$)$:

b$.$ Land costing $$4,500$ will be purchased in July.

c$.$ Dividends of $$5,000$ will be declared and paid in September.

d$.$ The cash balance on July $1^{st}$ is $$9,500$; the company must maintain a cash

balance of at least $$10,000$ at the end of each month.

e$.$ 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. The interest rate on

these loans is $12\%$ per year. The company would repay the loan plus

accumulated interest at the end of the quarter.

Required:

Prepare a cash budget for July, August and September.

A schedule of expected cash collections

A cash hudget