Natural Care Corp., a distributor of natural cosmetics, is ready to begin its th
ID: 2481165 • Letter: N
Question
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 $70,000, 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 $34,000. b. 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 2% in the second month following sale. The remainder is uncollectible
Budgeted merchandise purchases and budgeted expenses for the third quarter are given below:
d. 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 $174,000.
Equipment costing $20,000 will be purchased for cash during July.
In preparing the cash budget, assume that the $70,000 loan will be made in July and repaid in September. Interest on the loan will total $2,800.
May (actual) $ 330,000 June (actual) $ 290,000 July (budgeted) $ 340,000 August (budgeted) $ 440,000 September (budgeted) $ 437,000 Required: total Schedule of Expected Cash Collections July AugustSeptember Quarter From accounts receivable: May sales June sales 0 From budgeted sales: 0 July sales August sales September sales Total cash collections 0 $ 0 $ 0 $ 0Explanation / Answer
Schedule of expected Cash Collected during the Quarter:
Cash Budget:
July August September Quarter From Accounts Receivable: May Sales 6600 6600 June Sales 203000 5800 208800 From Budgeted Sales: July sales 85000 238000 6800 329800 Aug sales 110000 308000 418000 Sept sales 109250 109250 Total Cash Collection 294600 353800 424050 1072450Related Questions
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