Skolt 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, Skolt 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-October are as follows: July August September October Sales $ 46,000 $ 76,000 $56,000 $51,000 Cost of goods sold 27,600 45,600 33,600 30,600 Gross margin 18,400 30,400 22,400 20,400 Selling and administrative expenses: Selling expense Administrative expense* 7,800 6,200 12,300 7,800 9,100 6,700 7.900 6,500 Total selling and administrative expenses 14,000 20,100 15,800 14,400 Net operating income $ 4,400 $10,300 $ 6,600 $ 6,000 *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 totaled $36,000, and June sales totaled $42,000. 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 totaled $36,000, and June sales totaled $42,000. d. Inventory 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 $13,500. 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 $20,700. f. Land costing 55,100 will be purchased in July. 9. Dividends of $1,600 will be declared and paid in September. h. The cash balance on June 30 is $6,500; the company must maintain a cash balance of at least this amount at the end of each month. i. 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, up to a total loan balance of $40,000. The interest rate on these loans is 1% per month, and for simplicity, we will assume that interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter. Required: 1. Prepare a schedule of expected cash collections for July, August, and September and for the quarter in total. (Do not round intermediate calculations.) Skolt Products, Inc. Schedule of Expected Cash Collections July August September Quarter - Total Cash sales Credit sales: May June July August September Total cash collections 2. Prepare the following for merchandise inventory: a. Amerchandise purchases budget for July, August, and September. (Do not round intermediate calculations.) Skolt Products, Inc. Merchandise Purchases Budget July August Budgeted cost of goods sold September Total needs Required inventory purchases b. A schedule of expected cash disbursements for merchandise purchases for July, August, and September and for the quarter in total. Skolt Products, Inc. Schedule of Expected Cash Disbursements July August September Quarter - Total Accounts payable, June 30 July purchases August purchases September purchases Total cash disbursements 3. Prepare a cash budget for July, August, and September and for the quarter in total. September Quarter - Total Skolt Products, Inc. Cash Budget For the Quarter Ended September 30 July August Cash balance, beginning Add collections from sales Total cash available Less disbursements: For inventory purchases For selling expenses For administrative expenses For land For dividends Total disbursements Excess (deficiency) of cash available over disbursements Financing Borrowings Repayment Interest Total financing Cash balance, ending