Refer to the data for Scott Products Inc. in Problem 9€“21. The company€™s president is interested in knowing how reducing inventory levels and collecting accounts receivable sooner will impact the cash budget. He revises the cash collection and ending inventory assumptions as follows:

1. Sales continue to be 20% for cash and 80% on credit. However, credit sales from July, August, and September are collected over a three-month period, with 25% collected in the month of sale, 60% collected in the month following sale, and 15% in the second month following sale. Credit sales from May and June are collected during the third quarter using the collection percentages specified in Problem 9€“21.

In Problem 9€“21

2. The company maintains its ending inventory levels for July, August, and September at 25% of the cost of merchandise to be sold in the following month. The merchandise inventory at June 30 remains $18,000 and accounts payable for inventory purchases at June 30 remains $11,700. All other information from Problem 9€“21 that is not referred to above remains the same.
Required:
1. Using the president€™s new assumptions in (1) above, prepare a schedule of expected cash collections for July, August, and September and for the quarter in total.
2. Using the president€™s new assumptions in (2) above, prepare the following for merchandise inventory:
a. A merchandise purchases budget for July, August, and September.
b. A schedule of expected cash disbursements for merchandise purchases for July, August, and September and for the quarter in total.
3. Using the president€™s new assumptions, prepare a cash budget for July, August, and September and for the quarter in total.
4. Briefly explain how the president€™s revised assumptions affect the cash budget.

Transcribed Image Text:

September July August October Sales... Cost of goods sold. Gross margin... Selling and administrative expenses: Selling expense.. Administrative expense*. Total expenses Operating income. *Includes $2,000 depreciation each month. $70,000 42,000 $45,000 27,000 18,000 ...... $40,000 $50,000 28,000 16,000 20,000 8,500 6,100 7,300 7,200 5,600 11,700 7,200 18,900 $ 9,100 5,900 13,200 $ 4,800 ..... I... ...... 12,800 $ 3,200 14,600 $ 5.400 ......