Question

Problem 8-24 Cash Budget with Supporting Schedules (LO8-2, LO8-4, LO8-8] Garden Sales, Inc., sells garden supplies. Management is planning its cash needs for the second quarter. The company usually has to borrow money during this quarter to support peak sales of lawn care equipment, which occur during May. The following information has been assembled to assist in preparing a cash budget for the quarter: a. Budgeted monthly absorption costing income statements for April-July are: April May $ 600,000 $900,000 420,000 630,000 180,000 270,000 June July $500,000 $400,000 350,000 280,000 150,000 120,000 Sales Cost of goods sold Gross margin Selling and administrative expenses: Selling expense Administrative expense* Total selling and administrative expenses Net operating income 79,000 45,000 124,000 56,000 120,000 52,000 172,000 98,000 $ 62,000 41,000 103,000 47,000 $ 51,000 38,000 89,000 31,000 $ $ *Includes $20,000 of depreciation each month. b. Sales are 20% for cash and 80% on account. C. Sales on account are collected over a three-month period with 10% collected in the month of sale; 70% collected in the first month following the month of sale, and the remaining 20% collected in the second month following the month of sale. February's sales totaled $200,000, and March's sales totaled $300,000. d. Inventory purchases are paid for within 15 days. Therefore, 50% of a month's inventory purchases are paid for in the month of purchase. The remaining 50% is paid in the following month. Accounts payable at March 31 for inventory purchases during March total $126,000. e. Each month's ending inventory must equal 20% of the cost of the merchandise to be sold in the following month. The merchandise inventory at March 31 is $84,000. f. Dividends of $49,000 will be declared and paid in April. g. Land costing $16,000 will be purchased for cash in May. h. The cash balance at March 31 is $52,000; the company must maintain a cash balance of at least $40,000 at the end of each month. i. The company has an agreement with a local bank that allows the company to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of $200,000. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter.

Answer 1

Garden Sales Inc. Sales Budget For Quarter Ended June 30, 2015 April May June Quarter Total 33 Budgeted Unit Sales 34 Selling Price Per Unit 35 Total Sales $600,000.00 $ 900,000.00 $ 500,000.00 $ 2,000,000.00 Schedule of Expected Cash Collections 39 Cash $120,000.00 $ 180,000.00 40 February Sales $ 32,000.00 $ - 41 March Sales $ 168,000.00 $ 48,000.00 42 April Sales 600,000 - 120,000 = 480,000 on account $ 48,000.00 $336,000.00 43 May Sales 900,000 - 180,000 = 720,000 on account $ - $ 72,000.00 14 June Sales 500,000 - 100,000 = 400,000 on account - $ - 45 Total Cash Collections $368,000.00 $636,000.00 $ 100,000.00 $ 400,000.00 $ - $ 32,000.00 $ - $ 216,000.00 $ 96,000.00 $ 480,000.00 $ 504,000.00 $ 576,000.00 $ 40,000.00 $ 40,000.00 $ 740,000.00 $ 1,744,000.00 on account $ 248,000.00 $ 456,000.00 $ 640,000.00 $ 1,344,000.00

Garden Sales, Inc. Merchandising Budget For Quarter Ended June 30, 2015 55 Budgeted Cost of Goods Sold 56 Add Desired Ending Merchandising Inventory 57 Total Needs 58 Less Beginning Merchandising Inventory 59 Required Purchases April | May June $ 420,000.00 $630,000.00 $ 350,000.00 $ 126,000.00 $ 70,000.00 $ 56,000.00 $546,000.00 $ 700,000.00 $ 406,000.00 $ 84,000.00 $126,000.00 $ 70,000.00 $ 462,000.00 $574,000.00 $ 336,000.00 Quarter Total $1,400,000.00 $ 56,000.00 $ 1,652,000.00 $ 84,000.00 $ 1,372,000.00 Schedule of Expected Cash Disbursements for Merchandise Purchases 64 Beginning Accounts Payable $ 126,000.00 $ - $ - 65 April Purchases $ 231,000.00 $ 231,000.00 $ - 66 May Purchases $ - $ 287,000.00 $ 287,000.00 67 June Purchases - $ - $ 168,000.00 68 Total Cash Disbursements for Merchandise Purchases $ 357,000.00 $518,000.00 $ 455,000.00 $ 126,000.00 $ 462,000.00 $ 574,000.00 $ 168,000.00 $ 1,330,000.00

Garden Sales, Inc. Cash Budget For Quarter Ended June 30, 2015 Cash Budget April May June Quarter Total Beginning Cash Balance $ 52,000.00 $ 40,000.00 $ 40,000.00 $ 52,000.00 Add Cash Receipts $ 120,000.00 $ 180,000.00 $ 100,000.00 $ 400,000.00 Add Collections From Customers $ 248,000.00 $ 456,000.00 $ 640,000.00 $ 1,344,000.00 Total Cash Available $420,000.00 $676,000.00 $ 780,000.00 $ 1,876,000.00 Less Cash Disbursements Purchases $ 357,000.00 $518,000.00 $ 455,000.00 $ 1,330,000.00 Selling $ 79,000.00 $120,000.00 $ 62,000.00 $ 261,000.00 Administrative $ 25,000.00 $ 32,000.00 $ 21,000.00 $ 78,000.00 Land Purchases $ - $ 16,000.00 $ - $ 16,000.00 Dividends $ 49,000.00 $ - $ - $ 49,000.00 Total Cash Disbursements $510,000.00 $ 686,000.00 $ 538,000.00 $ 1,734,000.00 Excess (deficiency) of Cash Available Over Disbursements $ 90,000.00) $ (10,000.00 $ 242,000.00 $ 142,000.00 Financing Borrowings (at Beginnings of Month) $ 130,000.00 $ 50,000.00 $ - $ 180,000.00 Repayments (at End of the Quarter) $ - $ - $ (180,000.00) $ (180,000.00) Interest (1%) $ - $ - $ (1,800.00) $ (1,800.00) Total Financing $ 130,000.00 $ 50,000.00 $ (181,800.00) $ (1,800.00) Ending Cash Balance $ 40,000.00 $ 40,000.00 $ 60,200.00 $ 60,200.00