PROBLEM 9-23 Schedule of Expected Cash Collections; Cash Budget [LO2, LO8]Herbal Care Corp., a distributor of herb-based sunscreens, is ready to begin its third quarter, inwhich peak sales occur. The company has requested a $40,000, 90-day loan from its bank to helpmeet cash requirements during the quarter. Since Herbal Care has experienced difficulty in payingoff its loans in the past, the loan officer at the bank has asked the company to prepare a cash budgetfor 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$44,500.a.b.Actual sales for the last two months and budgeted sales for the third quarter follow (all salesare on account):$250,000May (actual).June (actual)July (budgeted)August (budgeted).September (budgeted)$300,000$400,000৪600,000$320,000Past experience shows that 25% of a month's sales are collected in the month of sale, 70% inthe month following sale, and 3% in the second month following sale. The remainder isuncollectible.Budgeted merchandise purchases and budgeted expenses for the third quarter are givenс.below:JulyAugustSeptember$ 240,000Merchandise purchasesSalaries and wagesAdvertising .Rent paymentsDepreciation.$350,000$45,000$ 130,000$50,000$145,000$175,000$ 40,000$ 80,000$9,000$10,000$9,000$ 10,000$9,000$ 10,000Merchandise purchases are paid in full during the month following purchase. Accounts pay-able for merchandise purchases on June 30, which will be paid during July, total S180,000.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 inSeptember. Interest on the loan will total $1,200.d.e.Profit Planning407Required:1. Prepare a schedule of expected cash collections for July, August, and September and for thequarter in total.2. Prepare a cash budget, by month and in total, for the third quarter.If the company needs a minimum cash balance of $20,000 to start each month, can the loan berepaid as planned? Explain.3.

Cash Budget: Cash Budget is a schedule to record cash inflows and outflows over a period with a view…

PROBLEM 9-23 Schedule of Expected Cash Collections; Cash Budget [L02, LO8] 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: a. On July 1, the beginning of the third quarter, the company will have a cash balance of $44,500. Actual sales for the last two months and budgeted sales for the third quarter follow (all sales are on account): b. May (actual).. June (actual) July (budgeted). August (budgeted). September (budgeted) $250,000 $300,000 ৪400,000 ৪600,000 $320,000 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: July August September Merchandise purchases Salaries and wages Advertising Rent payments Depreciation. $240,000 $45,000 $130,000 $350,000 $50,000 $145,000 $175,000 $40,000 $ 80,000 $9,000 $9,000 $9,000 $10,000 $10,000 $ 10,000 Merchandise purchases are paid in full during the month following purchase. Accounts pay- able for merchandise purchases on June 30, which will be paid during July, total $180,000. d. Equipment costing $10,000 will be purchased for cash during July. е. 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. Profit Planning 407 Required: Prepare a schedule of expected cash collections for July, August, and September and for the quarter in total. 2. Prepare a cash budget, by month and in total, for the third quarter. 3. If the company needs a minimum cash balance of $20,000 to start each month, can the loan be repaid as planned? Explain. 1.

PROBLEM 9-23 Schedule of Expected Cash Collections; Cash Budget [L02, LO8] 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: a. On July 1, the beginning of the third quarter, the company will have a cash balance of $44,500. Actual sales for the last two months and budgeted sales for the third quarter follow (all sales are on account): b. May (actual).. June (actual) July (budgeted). August (budgeted). September (budgeted) $250,000 $300,000 ৪400,000 ৪600,000 $320,000 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: July August September Merchandise purchases Salaries and wages Advertising Rent payments Depreciation. $240,000 $45,000 $130,000 $350,000 $50,000 $145,000 $175,000 $40,000 $ 80,000 $9,000 $9,000 $9,000 $10,000 $10,000 $ 10,000 Merchandise purchases are paid in full during the month following purchase. Accounts pay- able for merchandise purchases on June 30, which will be paid during July, total $180,000. d. Equipment costing $10,000 will be purchased for cash during July. е. 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. Profit Planning 407 Required: Prepare a schedule of expected cash collections for July, August, and September and for the quarter in total. 2. Prepare a cash budget, by month and in total, for the third quarter. 3. If the company needs a minimum cash balance of $20,000 to start each month, can the loan be repaid as planned? Explain. 1.

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter4: Internal Control And Cash

Section: Chapter Questions

Problem 66.1C

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