Natural Care Corp., a distributor of natural cosmetics, is ready to begin its third quarter, in which peak sales occur. The company has requested a $50,000, 90-day loan from its bank to help meet cash requirements during the quarter. Because Natural Care has experienced difficulty in paying off its loans in the past, the bank's loan officer has asked the company to prepare a cash budget for the quarter. In response to this request, the following data have been assembled:
| a. |
On July 1, the beginning of the third quarter, the company will have a cash balance of $28,000. |
| b. |
Actual sales for the last two months and budgeted sales for the third quarter follow (all sales are on account): |
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|
|
| May (actual) |
$ |
270,000 |
| June (actual) |
$ |
230,000 |
| July (budgeted) |
$ |
280,000 |
| August (budgeted) |
$ |
330,000 |
| September (budgeted) |
$ |
320,000 |
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| Past experience shows that 25% of a month's sales are collected in the month of sale, 70% in the month following sale, and 2% in the second month following sale. The remainder is uncollectible. |
| c. |
Budgeted merchandise purchases and budgeted expenses for the third quarter are given below: |
|
July |
August |
September |
| Merchandise purchases |
$ |
168,000 |
|
$ |
165,000 |
|
$ |
192,000 |
|
| Salaries and wages |
$ |
46,000 |
|
$ |
46,000 |
|
$ |
25,000 |
|
| Advertising |
$ |
56,000 |
|
$ |
66,000 |
|
$ |
67,000 |
|
| Rent payments |
$ |
23,000 |
|
$ |
23,000 |
|
$ |
23,000 |
|
| Depreciation |
$ |
33,000 |
|
$ |
33,000 |
|
$ |
33,000 |
|
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Merchandise purchases are paid in full during the month following purchase. Accounts payable for merchandise purchases on June 30, which will be paid during July, total $138,000. |
| d. |
Equipment costing $15,000 will be purchased for cash during July.
|
| e. |
In preparing the cash budget, assume that the $50,000 loan will be made in July and repaid in September. Interest on the loan will total $1,600.
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| Required: |
| 1. |
Prepare a schedule of expected cash collections for July, August, and September and for the quarter in total. (Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Omit the "$" sign in your response.)
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| Schedule of Expected Cash Collections |
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July |
August |
September |
Quarter |
| From accounts receivable: |
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| May sales |
$ |
$ |
$ |
$ |
| June sales |
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| From budgeted sales: |
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| July sales |
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| August sales |
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| September sales |
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| Total cash collections |
$ |
$ |
$ |
$ |
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| 2. |
Prepare a cash budget, by month and in total, for the third quarter. (Input all amounts as positive values except cash deficiency, repayments and interest which should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Omit the "$" sign in your response.)
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Natural Care Corp.,
Cash Budget |
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July |
August |
September |
Quarter |
| Cash balance, beginning |
$ |
$ |
$ |
$ |
| Add receipts: Collections from customers |
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| Total cash available |
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| Less disbursements: |
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| Merchandise purchases |
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| Salaries and wages |
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| Advertising |
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| Rent payments |
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| Equipment purchases |
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| Total disbursements |
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| Excess (deficiency) of receipts over disbursements |
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| Financing: |
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| Borrowings |
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| Repayments |
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| Interest |
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| Total financing |
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| Cash balance, ending |
$ |
$ |
$ |
$ |
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