Question

Check my work 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: points a. Budgeted monthly absorption costing income statements for April-July are: Skipped April $ 680,000 476,000 204,000 May $ 850,000 595,000 255.000 June $ 560,000 392,000 168,000 July $ 460,000 322,000 138,000 eBook Sales Cost of goods sold Gross margin Selling and administrative expenses: Selling expense Administrative expense* Total selling and administrative expenses Net operating income 86,000 105,000 67,000 46,000 48.000 64.800 41,600 44,000 134,000 169,800 108,600 90,000 $ 70,000 $ 85,200 $ 59,400 $ 48,000 Print "Includes $28,000 of depreciation each month. References 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 $260,000, and March's sales totaled $275,000. 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 $124,600. 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 $95,200. f. Dividends of $35,000 will be declared and paid in April. g. Land costing $43,000 will be purchased for cash in May. h. The cash balance at March 31 is $57,000; 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

Answer to Requirement 1. Expected Cash Collections April 136000 June May 170000 Quarter 418000 112000 Cash Sales Sales on account: February March April |May June Total Cash Collections 41600 154000 54400 44000 380 800 68000 108800 476000 44800 741600 41600 198000 544000 544000 44800 1790400 386000 662800 Answer to Requirement 2A. July 322000 Budgeted Cost of Goods Sold Add: Desired Ending Inventory Total Needs Less: Beginning Inventory Required Inventory Purchases Inventory Purchases Budget April 476000 119000 595000 95200 499800 May 595000 78400 673400 119000 554400 June 392000 64400 456400 78400 378000 Answer to Requirement 2B. June Accounts Payable, March 31 April Purchases May Purchases June Purchases Total Cash Disbursements Schedule of Expected Cash Disbursements in Inventory April May 124600 249900 249900 277200 Quarter 124600 499800 554400 189000 1367800 277200 189000 4 66200 374500 527100

Quarter May 40500 662800 703300 June 40400 741600 782000 57000 1790400 1847400 Answer to Requirement 3. Garden Sales, Inc. Cash Budget For the Quarter Ended June 30 April Beginning Cash Balance 57000 Add: Collections from Customers 386000 Total Cash Available 443000 Less: Cash Disbursements: Purchases for Inventory 374500 Selling Expenses 86000 Administrative Expenses 20000 Land Purchases Dividend Paid 35000 Total Cash Disbursements 515500 Excess (Deficiency) of Cash available over disbursements -72500 Financing: Borrowings 113000 Repayments Interest Total Financing 113000 Ending Cash Balance 40500 527100 105000 36800 43000 466200 67000 13600 0 1367800 258000 70400 43000 35000 1774200 73200 711900 -8600 546800 235200 49000 -162000 4370 - 166370 162000 -162000 4370 4370 68830 49000 40400 68830 Interest = ($113,000 * 1% * 3) + ($49,000 * 1% * 2) = $4,370