Final answer:
The student's question is related to preparing a detailed cash budget for July. It involves calculating cash receipts based on sales in previous months and current projections, and cash payments on merchandise purchases, salaries, commissions, taxes, and interest. The ending cash balance for July is forecasted to be $402,400.
Step-by-step explanation:
The student's question is about preparing a cash budget for the month of July. To accurately forecast the ending cash balance, we need to account for cash receipts from sales in previous months based on the collection pattern given (30% in the month of the sale, 50% in the next month, and 20% in the second month after sale) and upcoming month. Additionally, we need to consider cash payments for purchases with the payment pattern given (60% in the month of purchase and 40% in the month following purchase), as well as budgeted cash payments for salaries, sales commissions, income taxes, and loan interest. By considering these conditions, we can calculate the ending cash balance.
For May sales, we collect the remaining 20% in July that equals $1,720,000 * 20% = $344,000. From June sales, we collect 50%, which is $1,200,000 * 50% = $600,000. For July sales, we collect only 30% within the month, which is $1,400,000 * 30% = $420,000. These are the cash receipts summed up to $1,364,000.
For cash payments, we take 40% of June purchases in July, which is $700,000 * 40% = $280,000, and 60% of July purchases, which is $750,000 * 60% = $450,000. When we combine payments for purchases with salaries, sales commissions, income taxes, and loan interest, we get total cash payments of $1,011,600.
The final forecast for the ending cash balance in July would then be the beginning balance plus total receipts minus total payments: $50,000 + $1,364,000 - $1,011,600 = $402,400.