Reference no: EM132535903
Hamby Corporation is a merchandising company that is preparing a master budget for the third quarter of the calendar year. The company's balance sheet as of June 30th is shown below:
Hamby Corporation Balance Sheet June 30
Assets
Cash $75,000
Accounts receivable 140,000
Inventory 66,500
Plant and equipment, net of depreciation 227,000
Total assets $508,500
Liabilities and Stockholders' Equity
Accounts payable $88,000
Common stock 311,000
Retained earnings 109,500
Total liabilities and stockholders' equity $508,500
The company managers have made the following additional assumptions and estimates:
- Estimated sales for July, August, September, and October will be $380,000, $400,000, $390,000, and $410,000, respectively.
- All sales are on credit and all credit sales are collected. Each month's credit sales are collected 35% in the month of sale and 65% in the month following the sale. All of the accounts receivable at June 30 will be collected in July.
- Each month's ending inventory must equal 25% of the cost of next month's sales. The cost of goods sold is 70% of sales. The company pays for 40% of its merchandise purchases in the month of the purchase and the remaining 60% in the month following the purchase. All of the accounts payable at June 30 will be paid in July.
- Monthly selling and administrative expenses are always $52,000. Each month $7,000 of this total amount is depreciation expense and the remaining $45,000 relates to expenses that are paid in the month they are incurred.
- The company does not plan to borrow money or pay or declare dividends during the quarter ended September 30. The company does not plan to issue any common stock or repurchase its own stock during the quarter ended September 30.
Question 1: How much is the Company's expected cash collections in the month of August?
Multiple Choice
Option 1: $387,000
Option 2: $260,000
Option 3: $140,000
Option 4: $247,000