Herbal Care Corp., a distributor of herb-based sunscreens, is ready to begin its
ID: 2407198 • 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 $40,000, 90-day loan from its bank to help meet cash requirements during the quarter. Since 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:
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 3% 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 $150,000.
Equipment costing $10,000 will be purchased for cash during July.
In preparing the cash budget, assume that the $40,000 loan will be made in July and repaid in September. Interest on the loan will total $1,200.
Prepare a schedule of expected cash collections for July, August, and September and for the quarter in total.
Prepare a cash budget, by month and in total, for the third quarter. (Cash deficiency, repayments and interest should be indicated by a minus sign.)
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 $40,000, 90-day loan from its bank to help meet cash requirements during the quarter. Since 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:
Explanation / Answer
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Herbal Care Corp. Schedule of Expected Cash Collections July August September Quarter From accounts receivable: May sales 630 630 June sales 175000 7500 182500 From budgeted sales: July sales 92500 259000 11100 362600 August sales 147500 413000 560500 September sales 76250 76250 Total cash collections 268130 414000 500350 1182480 Percentage Collection 25% 70% 3% 25% 70% 25% Herbal Care Corp. Cash Budget July August September Quarter Beginning cash balance 43500 12130 35630 43500 Add receipts: Collections from customers 268130 414000 500350 1182480 Total cash available 311630 426130 535980 1225980 Less cash disbursements: Merchandise purchases 150000 222000 354000 726000 Salaries and wages 38500 45,000 46000 129500 Advertising 135000 117500 86000 338500 Rent payments 6000 6000 6000 18000 Equipment purchases 10000 10000 Total cash disbursements 339500 390500 492000 1222000 Excess (deficiency) of cash available over disbursements -27870 35630 43980 3980 Financing: Borrowings 40000 40000 Repayments -40000 -40000 Interest -1200 -1200 Total financing 40000 -41200 -1200 Ending cash balance 12130 35630 2780 2780Related Questions
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