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:

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 backtoschool 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 for July through October ' are as follows: J u ly August September October Sales $40,000 $70,000 $50,000 $45,000 Cost of goods sold 24,000 42,000 30,000 27,000 Gross margin 16,000 28,000 20,000 18,000 Selling and administrative expenses: Selling expense 7,200 11,700 8,500 7,300 Adm'TStrat'Ve 5,600 7,200 6,100 5,900 expense Total expenses 12,800 18,900 14,600 13,200 Operating income $ 3,200 $ 9,100 $ 5,400 $ 4,800 ' Includes $2,000 depreciation each month. TED?\" . Sales are 20% for cash and 80% on credit. . 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. .lnventory 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% is paid in the following month. Accounts payable for inventory purchases at June 30 total $11,700. .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. Land costing $4,500 will be purchased in July. . Dividends of $1,000 will be declared and paid in September. . 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. 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 ofa 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: 1. Prepare a schedule of expected cash collections for July, August, and September and for the quarter in total. X Answer is complete but not entirely correct. Collections on July August September Quarter sales: Cash sales $ 8,000 v $ 14,000 10,000 $ 32,000 Sales on account: May 6,000 X 6,000 June 25,200 X 7,200 X 32,400 July 4,000 X 28,000 X 8,000 X 40,000 August 7,000 X 49,000 X 56,000 September 10,000 X 10,000 Total cash $ 43,200 $ 56,200 $ 77,000 $ 176,400 collections2. Prepare the following for merchandise inventory: a. A merchandise purchases budget for July, August, and September. 6 Answer is complete but not entirely correct. Budgeted cost of goods sold 0 24,000 a $ 42,000 a 30,000 a $ 27,000 0 purchases Ado; Ending inventory 0 31,500 0 22,500 0 20,250 9 Total needs 55,500 04,500 50,250 Deduct: Ending inventory 9 10,000 0 31 ,500 a 22,500 9 Ram\" memo\" $ 3?,500 0 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. 0 Answer is complete and correct. Accounts payable, .J une 30 August purchases September purchases Total cash collections 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.)Scott Products, Inc. Cash Budget For the Quarter Ended September 30 July August September Quarter Cash balance, beginning $ 8,000 $ 8,450 X $ 9,470 x $ 8,000 Add collections from sales 43,200 X 56,200 X 77,000 X 176,400 X Total cash available 51,200 64,650 86,470 184,400 Less disbursements: For inventory purchases 30,450 35,250 30,375 96,075 For selling expenses 7,200 11,700 8,500 27,400 For administrative expenses 3,600 5,200 4, 100 12,900 For land 4,500 4,500 For dividends 1,000 1,000 Total disbursements 45,750 52, 150 43,975 141,875 Excess (deficiency) of cash available over 5,450 12,500 42,495 42,525 disbursements Financing: Borrowings 3,000 X 3,000 X Repayment (3,000) X (3,000) X Interest (30) X (30) X Total financing 3,000 (3,030) 0 (30) Cash balance, ending $ 8,450 $ 9,470 $ 42,495 $ 42,495