Skolt Products, Inc., is a merchandising company that sells binders, paper, and

Question

Skolt Products, Inc., is a merchandising company that sells binders, paper, and other school supplies. The company is planning its cash needs for the third quarter. In the past, Skolt Products has had to borrow money during the third quarter to support peak sales of back-to-school materials, which occur during August. The following information has been assembled to assist in preparing a cash budget for the quarter:

Credit sales are collected over a three-month period with 10% collected in the month of sale, 65% in the month following sale, and 25% in the second month following sale. May sales totaled $32,000, and June sales totaled $38,000.

Inventory purchases are paid for within 15 days. Therefore, 50% of a month’s inventory purchases are paid for in the month of purchase. The remaining 50% is paid in the following month. Accounts payable for inventory purchases at June 30 total $12,300.

The company maintains its ending inventory levels at 75% of the cost of the merchandise to be sold in the following month. The merchandise inventory at June 30 is $18,900.

The cash balance on June 30 is $7,000; the company must maintain a cash balance of at least this amount at the end of each month.

The company has an agreement with a local bank that allows it to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of $60,000. The interest rate on these loans is 1% per month, and for simplicity, we will assume that interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter.

Prepare a schedule of expected cash collections for July, August, and September and for the quarter in total. (Do not round intermediate calculations.)

Prepare the following for merchandise inventory:

A merchandise purchases budget for July, August, and September. (Do not round intermediate calculations.)

A schedule of expected cash disbursements for merchandise purchases for July, August, and September and for the quarter in total.

Prepare a cash budget for July, August, and September and for the quarter in total.

Skolt Products, Inc., is a merchandising company that sells binders, paper, and other school supplies. The company is planning its cash needs for the third quarter. In the past, Skolt Products has had to borrow money during the third quarter to support peak sales of back-to-school materials, which occur during August. The following information has been assembled to assist in preparing a cash budget for the quarter:

Explanation / Answer

Answer 1 Schedule of expected cash collections July August September Total Cash sales $8,400.00 $14,400.00 $10,400.00 $33,200.00 Credit sale collection - May Sales $6,400.00 $6,400.00 - June sales $19,760.00 $7,600.00 $27,360.00 - July sales $3,360.00 $21,840.00 $8,400.00 $33,600.00 - August sales $5,760.00 $37,440.00 $43,200.00 - September sales $4,160.00 $4,160.00 Expected Cash collections $37,920.00 $49,600.00 $60,400.00 $147,920.00 Answer 2-a A merchandise purchases budget for July, August, and September. July August September Total Cost of goods sold $25,200.00 $43,200.00 $31,200.00 $99,600.00 Add : Ending Inventory $32,400.00 $23,400.00 $21,150.00 $21,150.00 Less : Beginning Inventory $18,900.00 $32,400.00 $23,400.00 $18,900.00 Merchandise Purchases $38,700.00 $34,200.00 $28,950.00 $101,850.00 Answer 2-b A schedule of expected cash disbursements for merchandise purchases July August September Total Accounts Payable $12,300.00 $12,300.00 July Purchases $19,350.00 $19,350.00 $38,700.00 August Purchases $17,100.00 $17,100.00 $34,200.00 September Purchases $14,475.00 $14,475.00 Expected Cash Disbursements $31,650.00 $36,450.00 $31,575.00 $99,675.00 Answer 3 Cash Budget July August September Total Beginning Cash balance $7,000 $7,320 $7,420 $7,000 Cash collections $37,920 $49,600 $60,400 $147,920 Total Cash available $44,920 $56,920 $67,820 $154,920 Cash disbursements - Purchases $38,700 $34,200 $28,950 $101,850 - Selling Expenses $7,400 $11,900 $8,700 $28,000 - Administrative Expenses $3,800 $5,400 $4,300 $13,500 - Land $4,700 $4,700 - Dividends $1,200 $1,200 - Interest on borrowings $550 $550 Total Cash disbursements $54,600 $51,500 $43,700 $149,800 Net Cash surplus -$9,680 $5,420 $24,120 $5,120 Borrowings $17,000 $2,000 $19,000 (Repayments) $0 $0 -$17,000 -$17,000 Ending Cash balance $7,320 $7,420 $7,120 $7,120

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