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 $ 600,000 420,000 180,000 May $ 900,000 630,000 270,000 June $ 500,000 350,000 150,000 July $ 400,000 280,000 120,000 Sales Cost of goods sold Gross margin Selling and administrative expenses: Selling expense Administrative expense Total selling and administrative expenses Net operating income 120.000 79,000 120,000 62,000 45,000 52,000 41,000 124,000 172,000 103,000 $ 56,000 $ 98,000 $ 47,000 124.000 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. a. Land costina $16.000 will be purchased for cash in Mav. < Prev 4 of 4 ! Next >

Answer 1

Answer to Requirement 1. Expected Cash Collections April 120000 May 180000 June 100000 Quarter 400000 Cash Sales Sales on account: February March 32000 168000 48000 April 48000 336000 72000 32000 216000 480000 576000 40000 1744000 96000 504000 40000 740000 |May June Total Cash Collections 368000 636000 Answer to Requirement 2A. July 280000 Budgeted Cost of Goods Sold Add: Desired Ending Inventory Total Needs Less: Beginning Inventory Required Inventory Purchases Inventory Purchases Budget April 420000 126000 546000 84000 462000 May 630000 70000 700000 126000 574000 June 350000 56000 406000 70000 336000 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 126000 231000 231000 287000 Quarter 126000 462000 574000 168000 1330000 28 7000 168000 455000 357000 518000

June May 40000 636000 676000 40000 740000 780000 Quarter 52000 1744000 1796000 Answer to Requirement 3. Garden Sales, Inc. Cash Budget For the Quarter Ended June 30 April Beginning Cash Balance 52000 Add: Collections from Customers 368000 Total Cash Available 420000 Less: Cash Disbursements: Purchases for Inventory 357000 Selling Expenses 79000 Administrative Expenses 25000 Land Purchases Dividend Paid 49000 Total Cash Disbursements 510000 Excess (Deficiency) of Cash available over disbursements -90000 Financing: Borrowings 130000 Repayments Interest Total Financing 130000 Ending Cash Balance 40000 518000 120000 32000 16000 455000 62000 21000 1330000 261000 78000 16000 49000 1734000 62000 686000 -10000 538000 242000 50000 -180000 4900 -184900 57100 180000 -180000 4900 4900 57100 50000 40000 Interest = ($130,000 * 1% * 3) + ($50,000 * 1% * 2) = $4,900