Natural Care Corp., a distributor of natural cosmeti

| April 14, 2018

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 $60,000, 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 $43,000. b.Actual sales for the last two months and budgeted sales for the third quarter follow (all sales are on account): May (actual)$360,000 June (actual)$280,000 July (budgeted)$350,000 August (budgeted)$420,000 September (budgeted)$360,000 Past experience shows that 25% of a month’s sales are collected in the month of sale, 70% in the month following sale, and 2% in the second month following sale. The remainder is uncollectible. c.Budgeted merchandise purchases and budgeted expenses for the third quarter are given below:JulyAugustSeptember Merchandise purchases$170,000$155,000$165,000 Salaries and wages$70,000$70,000$65,000 Advertising$80,000$90,000$100,000 Rent payments$30,000$30,000$30,000 Depreciation$40,000$40,000$40,000 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 $160,000. d.Equipment costing $25,000 will be purchased for cash during July. e.In preparing the cash budget, assume that the $60,000 loan will be made in July and repaid in September. Interest on the loan will total $2,000. Required:1.Prepare a schedule of expected cash collections for July, August, and September and for the quarter in total. (Leave no cells blank – be certain to enter “0” wherever required. Do not round intermediate calculations.)Schedule of Expected Cash Collections July August September Quarter – Total From accounts receivable: May sales$ $ $ $ June sales From budgeted sales: July sales August sales September sales Total cash collections$ $ $ $ 2.Prepare a cash budget, by month and in total, for the third quarter. (Input all amounts as positive values except cash deficiency, repayments and interest which should be indicated by a minus sign. Leave no cells blank – be certain to enter “0” wherever required. Expenses are paid in the month incurred. Do not round intermediate calculations. Total Financing should be indicated with a minus sign when the company is repaying amounts that were previously borrowed. )Natural Care Corp.,Cash Budget July August September Quarter – Total Cash balance, beginning$ $ $ $ Add receipts: Collections from customers Total cash available Less disbursements: Merchandise purchases Salaries and wages Advertising Rent payments Equipment purchases Total disbursements Excess (deficiency) of receipts over disbursements Financing: Borrowings Repayments Interest Total financing Cash balance, ending$ $ $ $

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