The Hubbard Corporation is a distributor of hair care products and is ready to start the third quarter, in which its peak sales occur. The company has requested a $100,000, 90-day loan from its bank to help them meet their cash requirements for the third quarter. Since Hubbard Corporation has experienced difficulty in paying off their loans in previous years, the loan officer has requested the company prepare a cash budget for the third quarter. The following data has been gathered by the staff. On July 1, 2021, the beginning of the third quarter, the company will have a cash balance of $75,000. Actual sales for the last 2 months and budgeted sales for the third quarter (all sales are on account). Month Amount in Dollars ($) May (actual) 500,000 June (actual) 480,000 July (budgeted) 520,000 August (budgeted) 550,000 September (budgeted) 600,000 Past experience shows that 30% of a month's sales are collected in the month of sale, 60% in the month following the sale, and 5% in the second month following the sale. The remainder is uncollectible. Budgeted merchandise purchases and budgeted expenses for the third quarter are provided below. July August September Purchases (Merchandise) $200,000 $210,000 $175,000 Salaries & Wages $110,000 $110,000 $100,000 Advertising $150,000 $150,000 $150,000 Rent Payments $40,000 $40,000 $40,000 Depreciation $55,000 $55,000 $55,000 Merchandise purchases are paid in full during the month following purchase. The accounts payable for merchandise purchases on June 30, which will be paid during the month of July, total $150,000. The company will purchase equipment for the month of August, which is expected to cost $30,000, and it will be paid during the month of August. In preparing the cash budget, assume that the $100,000 loan will be made in July and repaid in September. The interest rate charged on the loan is 10% annually. Prepare a schedule of expected cash receipts (collections) for July, August, and September and for the quarter in total. Prepare a cash budget, by month and in total, for third quarter (July through September). If the company needs a minimum cash balance of $75,000 to start each month, can the loan be repaid as planned? Please explain.

The Hubbard Corporation is a distributor of hair care products and is ready to start the third quarter, in which its peak sales occur. The company has requested a $100,000, 90-day loan from its bank to help them meet their cash requirements for the third quarter. Since Hubbard Corporation has experienced difficulty in paying off their loans in previous years, the loan officer has requested the company prepare a cash budget for the third quarter. The following data has been gathered by the staff. On July 1, 2021, the beginning of the third quarter, the company will have a cash balance of $75,000. Actual sales for the last 2 months and budgeted sales for the third quarter (all sales are on account). Month Amount in Dollars ($) May (actual) 500,000 June (actual) 480,000 July (budgeted) 520,000 August (budgeted) 550,000 September (budgeted) 600,000 Past experience shows that 30% of a month's sales are collected in the month of sale, 60% in the month following the sale, and 5% in the second month following the sale. The remainder is uncollectible. Budgeted merchandise purchases and budgeted expenses for the third quarter are provided below. July August September Purchases (Merchandise) $200,000 $210,000 $175,000 Salaries & Wages $110,000 $110,000 $100,000 Advertising $150,000 $150,000 $150,000 Rent Payments $40,000 $40,000 $40,000 Depreciation $55,000 $55,000 $55,000 Merchandise purchases are paid in full during the month following purchase. The accounts payable for merchandise purchases on June 30, which will be paid during the month of July, total $150,000. The company will purchase equipment for the month of August, which is expected to cost $30,000, and it will be paid during the month of August. In preparing the cash budget, assume that the $100,000 loan will be made in July and repaid in September. The interest rate charged on the loan is 10% annually. Prepare a schedule of expected cash receipts (collections) for July, August, and September and for the quarter in total. Prepare a cash budget, by month and in total, for third quarter (July through September). If the company needs a minimum cash balance of $75,000 to start each month, can the loan be repaid as planned? Please explain.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter8: Budgeting For Planning And Control

Section: Chapter Questions

Problem 11CE: Shalimar Company manufactures and sells industrial products. For next year, Shalimar has budgeted...

See similar textbooks

The Hubbard Corporation is a distributor of hair care products and is ready to start the third quarter, in which its peak sales occur. The company has requested a $100,000, 90-day loan from its bank to help them meet their cash requirements for the third quarter. Since Hubbard Corporation has experienced difficulty in paying off their loans in previous years, the loan officer has requested the company prepare a cash budget for the third quarter.

The following data has been gathered by the staff.

On July 1, 2021, the beginning of the third quarter, the company will have a cash balance of $75,000.
Actual sales for the last 2 months and budgeted sales for the third quarter (all sales are on account).

Month	Amount in Dollars ($)
May (actual)	500,000
June (actual)	480,000
July (budgeted)	520,000
August (budgeted)	550,000
September (budgeted)	600,000

Past experience shows that 30% of a month's sales are collected in the month of sale, 60% in the month following the sale, and 5% in the second month following the sale. The remainder is uncollectible.

Budgeted merchandise purchases and budgeted expenses for the third quarter are provided below.

	July	August	September
Purchases (Merchandise)	$200,000	$210,000	$175,000
Salaries & Wages	$110,000	$110,000	$100,000
Advertising	$150,000	$150,000	$150,000
Rent Payments	$40,000	$40,000	$40,000
Depreciation	$55,000	$55,000	$55,000

Merchandise purchases are paid in full during the month following purchase. The accounts payable for merchandise purchases on June 30, which will be paid during the month of July, total $150,000.

The company will purchase equipment for the month of August, which is expected to cost $30,000, and it will be paid during the month of August.
In preparing the cash budget, assume that the $100,000 loan will be made in July and repaid in September. The interest rate charged on the loan is 10% annually.

Prepare a schedule of expected cash receipts (collections) for July, August, and September and for the quarter in total.
Prepare a cash budget, by month and in total, for third quarter (July through September).
If the company needs a minimum cash balance of $75,000 to start each month, can the loan be repaid as planned? Please explain.

Definition Definition Estimate of an organization's cash flow for a future period. A cash budget forecasts future cash receipts and payments from various sources for a fiscal year. A cash budget can be created once a month or once a week to determine the organization's cash position and ensure its performance in relation to the budget. It aids in determining whether the company has enough cash and cash equivalents to meet its operational needs in the future.

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.