Scenario: Cash Budget The Hubbard Corporation is a distributor of hair care products and is ready to start the third qua

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Scenario Cash Budget The Hubbard Corporation Is A Distributor Of Hair Care Products And Is Ready To Start The Third Qua 1 (75.73 KiB) Viewed 29 times

Scenario: Cash Budget 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. A. On July 1, 2021, the beginning of the third quarter, the company will have a cash balance of $75,000. B. Actual sales for the last 2 months and budgeted sales for the third quarter (all sales are on account) Month Amount in Dollars (5) 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. C. 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. D. 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. E. 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. Assignment Details Important! It is expected that the assignment will be completed using an Excel spreadsheet using formulas 1. Prepare a schedule of expected cash receipts (collections) for July, August, and September and for the quarter in total 2. Prepare a cash budget, by month and in total, for third quarter (July through September). 3. If the company needs a minimum cash balance of $75,000 to start each month, can the loan be repaid as planned? Please explain. 111