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Question 3: (15 marks) MelbCity Ltd has provided the estimates below for the January - March quarter in 2016: January February March $ $ $ Sales of inventory 80,000 70,000 90,000 Purchases of inventory 20,000 30,000 40,000 Operating expenses 20,000 21,000 23,500 You are also given the following additional information: • 25% of sales are cash sales, the remaining 75% are credit sales and are collected as follows: o 30% of credit sales are collected in the month of sale o 70% of credit sales are collected in the following month after sale • Sales in the month of December 2015 were $42,000. • All purchase of inventory is made on credit and are paid for in the same month they are incurred. • Operating expenses include depreciation expense each month of $3,000. All expenses are paid for in the same month they are incurred. • Loan repayments of $10,000 per month are due to start in February. • The firm expects to sell some old machinery for $5,000 in January. New machinery worth $70,000 will be purchased in March (depreciation expense will not change as a result). • The cash balance on 30th December 2015 is $5,000. REQUIRED: a) Prepare a Schedule of expected receipts from Debtors (Account receivable) for MelbCity Ltd for the three months January to March 2016. Show all workings. b) Prepare a cash budget for MelbCity Ltd for the three months January to March 2016. Show all workings. c) MelbCity Ltd is budgeting for a cash deficit at the end of one of the months included in their cash budget. Briefly explain how MelbCityLtd could prepare for this forecasted deficit.