Sunshine Company is ready to begin its third quarter, in which peak sales occur. The company requested a $30,000, 90-day loan from its bank to

Sunshine Company is ready to begin its third quarter, in which peak sales occur. The company requested a $30,000, 90-day loan from its bank to meet cash requirements during the quarter. Since Sunshine Company 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 the request the following data has been assembled. On July 1, the beginning of the quarter, the company will have a cash balance of $94,500. The selling price per unit is $50. Actual sales units for the last two months and the budgeted sales for the third quarter follow: May (actual) 8000 units June (actual) 7000 units July (budgeted) 8000 units August (budgeted) 12000 units September (budgeted) 7500 units The company expects to sell 10% of its merchandise for cash.  Of sales on account, 60% are expected to be collected in the month of sale and 40% in the month following sale. Budgeted merchandise purchase and budgeted expenses for the quarter are given below: July August September Merchandise purchases $240,000 $350,000 $175,000 Salaries and wages $45,000 $50,000 $40,000 Utility $130,000 $145,000 $80,000 Rent Payments $9,000 $9,000 $9,000 Other operating expenses (including depreciation expense) $80,000 $60,000 $70,000 Merchandise purchases are paid in two steps – half at the time of purchase and the reminder during the month following purchase. Accounts payable for merchandising purchase on June 30, which will be paid during July totaled $80,000. The company uses the straight line method for calculating depreciation. The depreciation expense per year is $120,000. Equipment costing $15,000 will be purchased for cash during July. Dividends of $20,000 will be paid in July. The company has decided to rent another store from the coming quarter at $5,000 per month from October. The month before renting the store the company will have to pay two month’s rent in advance. In preparing the cash budget, assume that the $30,000 loan will be made in July and repaid in September. The quarterly interest rate on the loan is 5%. Required: Prepare the expected cash collection schedule for July, August and September and for the quarter in total. Prepare the cash budget, by month and in total, for the third quarter.

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