Question
Garden Sales, Inc., sells garden supplies. Management is planning its cash needs for the second quarter....
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 June July $ 670,000 $ 840,000 $ 550,000 $ 450,000 469,000 588,000 385,000 315,000 201,000 252,000 165,000 135,000 Sales Cost of goods sold Gross margin Selling and administrative expenses : Selling expense Administrative expense* Total selling and administrative expenses Net operating income 85,000 47,500 132,500 $ 68,500 104,000 66,000 64,000 40,400 168,000 106,400 $ 84,000 $ 58,600 45,000 43,000 88,000 $ 47,000 *Includes $27,000 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 $255,000, and March's sales totaled $270,000. 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 $122,500. 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 $93,800.
f. Dividends of $34,000 will be declared and paid in April. g. Land costing $42,000 will be purchased for cash in May. h. The cash balance at March 31 is $56,000; 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. Required: 1. Prepare a schedule of expected cash collections for April, May, and June, and for the quarter in total. 2. Prepare the following for merchandise inventory: a. A merchandise purchases budget for April, May, and June. b. A schedule of expected cash disbursements for merchandise purchases for April, May, and June, and for the quarter in total. 3. Prepare a cash budget for April, May, and June as well as in total for the quarter. Complete this question by entering your answers in the tabs below.
Required 1 Required 2A Required 2B Required 3 Prepare a schedule of expected cash collections for April, May, and June, and for the quarter in total. Schedule of Expected Cash Collections April May June Quarter Cash sales Sales on account: February March April May June Total cash collections
Required 1 Required 2A Required 2B Required 3 Prepare the following for merchandise inventory, a merchandise purchases budget for April, May, and June. Merchandise Purchases Budget April May June Total needs Required inventory purchases
Required 1 Required 2A Required 2B Required 3 Prepare the following for merchandise inventory, a schedule of expected cash disbursements for merchandise purchases for April, May, and June, and for the quarter in total. Schedule of Expected Cash Disbursements for Merchandise Purchases April May June Quarter April purchases May purchases June purchases Total cash disbursements
Prepare a cash budget for April, May, and June as well as in total for the quarter. (Cash deficiency, repayments and interest should be indicated by a minus sign.) May June Quarter Garden Sales, Inc. Cash Budget For the Quarter Ended June 30 April Beginning cash balance Add collections from customers Total cash available Less cash disbursements: Purchases for inventory Selling expenses Administrative expenses Land purchases Dividends paid Total cash disbursements Excess (deficiency) of cash available over disbursements Financing: Borrowings Repayment Interest Total financing Ending cash balance
Answers
Solution 1:
Schedule of expected cash collection - Garden Sales Particulars April May June Quarter Cash sales(20%) $134,000.00 $168,000.00 $110,000.00 $412,000.00 Sales on Account:(80%) February $40,000.00 $40,000.00 March $151,200.00 $43,200.00 $194,400.00 April $53,600.00 $375,200.00 $107,200.00 $536,000.00 May $67,200.00 $470,400.00 $537,600.00 June $44,000.00 $44,000.00 Total Cash Collection $378,800.00 $653,600.00 $731,600.00 $1,764,000.00 Solution 2a:
Merchandise Purchase Budget Particulars April May June Budgeted Cost of goods sold $469,000.00 $588,000.00 $385,000.00 Add: Desired ending inventory (20% of COGS of next month) $117,600.00 $77,000.00 $63,000.00 Total needs $586,600.00 $665,000.00 $448,000.00 Less: Opening Inventory $93,800.00 $117,600.00 $77,000.00 Required Inventory purchases $492,800.00 $547,400.00 $371,000.00 Solution 2b:
Schedule of expected cash disbursement for merchandise purchases Particulars July August September Total Beginning accounts payable $122,500.00 $122,500.00 April Purchases $246,400.00 $246,400.00 $492,800.00 May Purchases $273,700.00 $273,700.00 $547,400.00 June Purchases $185,500.00 $185,500.00 Total cash disbursement $368,900.00 $520,100.00 $459,200.00 $1,348,200.00 Solution 3:
Cash Budget - Garden Sales Inc.
For the quarter ended June 30Particulars April May June Quarter Opening Cash balance $56,000.00 $40,400.00 $40,900.00 $56,000.00 Add: Collection from customers $378,800.00 $653,600.00 $731,600.00 $1,764,000.00 Total Cash Available $434,800.00 $694,000.00 $772,500.00 $1,820,000.00 Less - Cash Disbursement: Purchases For Inventory $368,900.00 $520,100.00 $459,200.00 $1,348,200.00 Selling expenses $85,000.00 $104,000.00 $66,000.00 $255,000.00 Administrative expenses $20,500.00 $37,000.00 $13,400.00 $70,900.00 Land Purcahses $0.00 $42,000.00 $0.00 $42,000.00 Dividend paid $34,000.00 $0.00 $0.00 $34,000.00 Total Cash disbursement $508,400.00 $703,100.00 $538,600.00 $1,750,100.00 Excess (deficiency) of cash available over disbursements -$73,600.00 -$9,100.00 $233,900.00 $69,900.00 Financing: Borrowings $114,000.00 $50,000.00 $0.00 $164,000.00 Repayments $0.00 $0.00 -$164,000.00 -$164,000.00 Interest $0.00 $0.00 -$4,420.00 -$4,420.00 Total Financing $114,000.00 $50,000.00 -$168,420.00 -$4,420.00 Ending cash balance $40,400.00 $40,900.00 $65,480.00 $65,480.00
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