Scott 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, Scott 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 through October are as follows: Sales Cost of goods sold Gross margin Selling and administrative expenses: Selling expense Administrative expense Total expenses Operating income Includes $2,000 depreciation each month. Calon arm and far maand one on endis July $40,000 August $70,000 24,000 42,000 September October $50,000 $45,000 30,000 27,000 16,000 28,000 20,000 18,000 7,200 11,700 8,500 7,300 5,600 12,800 $ 3,200 7,200 18,900 $ 9,100 6,100 5,900 14,600 $ 5,400 13,200 $ 4,800 000 Includes $2,000 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 $30,000, and June sales totalled $36,000. d. Inventory purchases are paid for within 15 days. Therefore, 50% of a month's Inventory purchases is paid for in the month of purchase. The remaining 50% is paid in the following month. Accounts payable for inventory purchases at June 30 total $11,700. 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 $18,000. f. Land costing $4,500 will be purchased in July. g. Dividends of $1,000 will be declared and paid in September. h. The cash balance on June 30 is $8,000; 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 the company to borrow up to a total loan balance of $40,000. The interest rate on these loans is 1% per month. All borrowing is done at the beginning of a month. The company would, as far as it is able, repay the loan at the end of each month. Interest must be paid at the end of each month based on the outstanding loans for that month. There are no loans outstanding as at June 30. Required: Required: 1. Prepare a schedule of expected cash collections for July, August, and September and for the quarter in total. Answer is complete and correct. Collections on sales: July August September Quarter Cash sales $ 8,000 S 14,000 S 10,000 $ 32,000 Credit sales: May 4,800 4,800 June 20,160 5,760 25,920 July 3,200 22,400 6,400 32.000 August 5,600 39.200 44,800 September 4,000 4,000 Total cash collections $ 36,160 $ 47,760 $ 59,600 $ 143,520 2. Prepare the following for merchandise inventory: a. A merchandise purchases budget for July, August, and September, Answer is complete and correct. Merchandise Purchases Budget July August September October Budgeted cost of goods sold $ 24,000 $ 42,000 $ 30,000 S 27,000 ( Add: Desired ending inventory Total needs 31,500 22,500 20,250 55,500 64,500. 50,250 Less: Beginning inventory 18,000 31,500 22,500 Required inventory purchases $ 37,500 $ 33,000 $ 27,750 b. A schedule of expected cash disbursements for merchandise purchases for July, August, and September and for the quarter in total. Answer is complete and correct. July August Accounts payable, June 30 $ 11,700 July purchases 18,750 August purchases 18,750 16,500 September Quarter S 11,700 37.500 September purchases 16,500. 13,875 33,000 13,875 Total cash disbursements. $ 30,450 $ 35,250 $ 30,375 $ 96,075 3. Prepare a cash budget for July, August, and September and for the quarter in total. (Round your intermediate calculations and final answers to the nearest whole dollar. Cash deficiency, repayments and interest should be indicated by a minus sign.) 3. Prepare a cash budget for July, August, and September and for the quarter in total. (Round your intermediate calculations and final answers to the nearest whole dollar. Cash deficiency, repayments and interest should be indicated by a minus sign.) Answer is complete but not entirely correct. Scott Products, Inc. Cash Budget For the Quarter Ended September 30 Cash balance, beginning Add collections from sales Total cash available Less disbursements: For inventory purchases For selling expenses For administrative expenses July August September Quarter S 8,000 $ 8,000 $ 8,000 $ 8,000 36,160 ( 47,760 59,600 143,520 44,160 55,760 67,600 151,520 30,450 35,250 30,375 96,075 7,200 11,700 8,500 27,400 ( 3,600 5,200 4,100 ( 12,900 44,100 39,700 07,000 131,520 Less disbursements: For inventory purchases For selling expenses For administrative expenses For land For dividends 30,450 35,250 30,375 96,075 7,200 11,700 8,500 27,400 3,600 5,200 4,100 12,900 4,500 4,500 1,000 1,000 Total disbursements 45,750 52,150 43,975 141,875 Excess (deficiency) of cash available over disbursements (1,590) 3,610 23,625 9,645 Financing: Borrowings 9,495 4,252 Repayment Interest Total financing Cash balance, ending 09 13,747 (13,747) (13,747) 95 X 138 X (137) 96 X 9,590 4,390 (13,884) 96 $ 8,000 S 8,000 $ 9,741 $ 9,741