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Herbal Care Corp., a distributor of herb-based sunscreens, isready to begin its third quarter, in which peak sales occur. Thecompany has requested a $40,000, 90-day loan from its bank to helpmeet cash requirements during the quarter. Since Herbal Care hasexperienced difficulty in paying off its loans in the past, theloan officer at the bank has asked the company to prepare a cashbudget for the quarter. In response to this request, the followingdata have been assembled: a. On July 1, the beginning of the thirdquarter, the company will have a cash balance of $47,500. b. Actualsales for the last two months and budgeted sales for the thirdquarter follow (all sales are on account): May (actual) $ 290,000June (actual) $ 330,000 July (budgeted) $ 450,000 August (budgeted)$ 660,000 September (budgeted) $ 340,000 Past experience shows that25% of a month’s sales are collected in the month of sale, 70% inthe month following sale, and 3% in the second month followingsale. The remainder is uncollectible. c. Budgeted merchandisepurchases and budgeted expenses for the third quarter are givenbelow: July August September Merchandise purchases $ 270,000 $396,000 $ 204,000 Salaries and wages $ 42,000 $ 52,000 $ 53,000Advertising $ 170,000 $ 128,000 $ 93,000 Rent payments $ 7,400 $7,400 $ 7,400 Depreciation $ 8,000 $ 8,000 $ 8,000 Merchandisepurchases are paid in full during the month following purchase.Accounts payable for merchandise purchases on June 30, which willbe paid during July, total $198,000. d. Equipment costing $10,000will be purchased for cash during July. e. In preparing the cashbudget, assume that the $40,000 loan will be made in July andrepaid in September. Interest on the loan will total $1,200.Required: 1. Prepare a schedule of expected cash collections forJuly, August, and September and for the quarter in total. 2.Prepare a cash budget, by month and in total, for the thirdquarter. (Cash deficiency, repayments and interest should beindicated by a minus sign.)