Herbal Care Corp.. a distributor of herb-based sunscreens, is ready to begin its
ID: 2346589 • Letter: H
Question
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 $91.800. 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: On July 1. the beginning of the third quarter, the company will have a cash balance of $49.000. Actual sales for the last two months and budgeted sales for the third quarter follow (all sales are on account):Past experience shows that 25% of a month's sales are collected in the month of sale. 70% in the month following sale, and 1% in the second month following sale. The remainder is uncollectible. Budgeted merchandise purchases and budgeted expenses for the third quarter are given below: 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 $213.000. Equipment costing $8.600 will be purchased for cash during July. In preparing the cash budget, assume that the $91.800 loan will be made in July and repaid in September. Interest on the loan will total $1.100. Prepare a schedule of expected cash collections for July, August, and September and for the quarter in total. (Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response)Explanation / Answer
July
August
September
Quarter
From accounts receivable
May sales
2500
0
0
2500
June sales
175000
2500
0
177500
From budgeted sales:
July sales
107500
301000
4300
412800
August sales
0
157500
441000
598500
September sales
0
0
97500
97500
Total cash collections
285000
461000
542800
1288800
Calculations:
July:
1% of May = 0.01*250,000 = 25,000
70% of June = 0.70*250,000 = 175,000
25% of July = 0.25*430,000 = 107,500
August:
1% of June = 0.01*250,000 = 2,500
70% of July = 0.70*430,000 = 301,000
25% of August = 0.25*630,000 = 157,500
September:
1% of July = 0.01*430,000 = 4,300
70% of August = 0.70*630,000 = 441,000
25% of September = 0.25*390,000 = 97,500
July
August
September
Quarter
From accounts receivable
May sales
2500
0
0
2500
June sales
175000
2500
0
177500
From budgeted sales:
July sales
107500
301000
4300
412800
August sales
0
157500
441000
598500
September sales
0
0
97500
97500
Total cash collections
285000
461000
542800
1288800
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