Response to the following problem:
Ryan Richards, controller for Grange Retailers, has assembled the following data to assist in the preparation of a cash budget for the third quarter of the year:
Sales:
| May (actual) |
$100,000 |
| June (actual) |
120,000 |
| July (estimated) |
90,000 |
| August (estimated) |
100,000 |
| September (estimated) |
135,000 |
| October (estimated) |
110,000 |
Each month, 30% of sales are for cash and 70% are on credit. The collection pattern for credit sales is 20% in the month of sale, 50% in the following month, and 30% in the second month following the sale.
Each month, the ending inventory exactly equals 50% of the cost of next month's sales. The markup on goods is 25% of cost.
Inventory purchases are paid for in the month following the purchase.
Recurring monthly expenses are as follows:
| Salaries and wages |
$10,000 |
| Depreciation on plant and equipment |
4,000 |
| Utilities |
1,000 |
| Other |
1,700 |
Property taxes of $15,000 are due and payable on July 15.
Advertising fees of $6,000 must be paid on August 20.
A lease on a new storage facility is scheduled to begin on September 2. Monthly payments are $5,000.
The company has a policy to maintain a minimum cash balance of $10,000. If necessary, it will borrow to meet its short-term needs. All borrowing is done at the beginning of the month. All payments on principal and interest are made at the end of a month. The annual interest rate is 9%. The company must borrow in multiples of $1,000.
A partially completed balance sheet as of June 30 follows. (Note: Accounts payable is for inventory purchases only.)