Herbal Care Corp., a distributor of herb-based sunscreens, is ready to begin its third quarter, in which peak sales occur. The company has requested a $70,700, 90-day loan from its bank to help meet cash requirements during the quarter. Because Herbal Care has experienced difficulty in paying off its loans in the past, the loan officer at the bank 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 $33,000.
b. Actual sales for the last two months and budgeted sales for the third quarter follow (all sales are on account):
May (actual) $240,000
June (actual) $250,000
July (budgeted) $580,000
August (budgeted) $620,000
September (budgeted) $360,000
Past experience shows that 26% of a month's sales are collected in the month of sale, 69% in the month following sale, and 1% 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 $229,000 $333,000 $168,000
Salaries and wages $48,000 $33,000 $23,000
Advertising $142,000 $145,000 $70,000
Rent payments $7,700 $8,200 $7,500
Depreciation $9,700 $8,800 $9,800
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 $209,000.
d. Equipment costing $9,700 will be purchased for cash during July.
e. In preparing the cash budget, assume that the $70,700 loan will be made in July and repaid in September. Interest on the loan will total $1,120.
Requirement 1:
Prepare a schedule of expected cash collections for July, August, and September and for the quarter in total. (Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response)
Month
July August September Quarter
From accounts receivable:
May sales $ $ $ $
June sales
From budgeted sales:
July sales
August sales
September sales
Total cash collections
$
$
$
$
Requirement 2:
Prepare a cash budget, by month and in total, for the third quarter. (Show deficiencies, and total financing preceded by a minus sign wherever appropriate. Enter all other amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)
Month
July August September Quarter
Total cash available
$
$
$
$
Total disbursements
Excess (deficiency) of receipts over disbursements
Total financing
Cash balance, ending
$
$
$
$