Question

Herbal Care Corp., a distributor of herb-based sunscreens, is ready to begin its third quarter, in which peak sales o cour. 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: a. On July 1, the beginning of the third quarter the company will have a cash balance of $53,500. b. Actual sales for the last two months and budgeted sales for the third quarter follow (all sales are on account) May (actual) June (actual) July (budgeted) August (budgeted) September (budgeted) $ 410,000 $ 450,000 $ 570.000 $ 780,000 $ 400.000 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. c. Budgeted merchandise purchases and budgeted expenses for the third quarter are given below: Merchandise purchases Salaries and wages Advertising Rent payments Depreciation July $342,000 $ 42,500 $230,000 $ 9,800 $ 11,000 August $468,000 $ 64,000 $146,000 $ 9.800 $ 11,000 September $240,000 $ 65,000 $100,000 $ 9,800 $ 11,000 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 $270,000 d. Equipment costing $10,000 will be purchased for cash during July. e. 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 Required: 1. Prepare a schedule of expected cash collections for July August, and September and for the quarter in total. Herbal Care Corp. Schedule of Expected Cash Collections July August September Quarter From accounts receivable: May sales June sales From budgeted sales: July sales August sales September sales Total cash collections

Answer 1

1.	Herbal Care Corp.
	Schedule of Expected Cash Collections
		July	August	September	Quarter
	From Account receivables:
	May sales	12300			12300
	June sales	315000	13500		328500
	From budgeted sales
	July sales	142500	399000	17100	558600
	August sales		195000	546000	741000
	September Sales			100000	100000
	Total cash collections	469800	607500	663100	1740400
2.	Herbal Care Corp.
	Cash Budget
		July	August	September	Quarter
	Beginning cash balance	53500	1000	46700	53500
	Add receipts: Collection and customers	469800	607500	663100	1740400
	Total cash available	523300	608500	709800	1793900
	Less cash disbursements:
	merchandise purchases	$   270.000,00	$ 342.000,00	$ 468.000,00	$ 1.080.000,00
	Salaries and wages	$      42.500,00	$    64.000,00	$   65.000,00	$     171.500,00
	Advertising	$   230.000,00	$ 146.000,00	$ 106.000,00	$     482.000,00
	Rent payments	$        9.800,00	$       9.800,00	$     9.800,00	$       29.400,00
	Equipment purchases	$      10.000,00	$                   -	0	$       10.000,00
	Total Cash disbursements	$   562.300,00	$ 561.800,00	$ 648.800,00	$ 1.772.900,00
	Excess (deficiency) of cash available over disbursements	$    -39.000,00	$    46.700,00	$   61.000,00	$       21.000,00
	Financing
	Borrowings	40000	$	0	40000
	Repayments		$	40000	$       40.000,00
	Interest		$	1200	$         1.200,00
	Total financing	40000	0	-41200	-1200
	Ending cash balance	$        1.000,00	$    46.700,00	$   19.800,00	$       19.800,00

Working notes

a.	opening balance	53500
b.	Actual sales for last two months and budgeted sales for the 3rd Quarter
		may		June		July		august		september
Sales		$ 410.000,00		$     450.000,00		$ 570.000,00		$ 780.000,00		$ 400.000,00
current month receipt	25	$ 102.500,00	25	$     112.500,00	25	$ 142.500,00	25	$ 195.000,00	25	$ 100.000,00
previous months receipt			70	$     287.000,00	70	$ 315.000,00	70	$ 399.000,00	70	$ 546.000,00
2month back					3	$   12.300,00	3	$   13.500,00	3	$   17.100,00
Cash collected from sales						$ 469.800,00		$ 607.500,00		$ 663.100,00
uncollectable					2	$   11.400,00	2	$   15.600,00	2	$     8.000,00
Cash collected from sales						$ 469.800,00	+	$ 607.500,00	+	$ 663.100,00
c.	Purchases and budgeted expenses for the 3rd Quarter
	june		july		august		september
Merchandise purchases	270000		$ 270.000,00		$ 342.000,00		$ 468.000,00
Salaries and wages			$   42.500,00		$     64.000,00		$   65.000,00
Advertising			$ 230.000,00		$ 146.000,00		$ 106.000,00
Rent payments			$     9.800,00		$       9.800,00	-	$     9.800,00	-
d	equipment cost
	July	$    10.000,00	-
e.	Loan made
	July	$    40.000,00	+
	September	$    40.000,00	-
interest		$       1.200,00	-