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:

1. Budgeted monthly absorption costing income statements for AprilJuly are:

*Includes $13,000 of depreciation each month.

2. Sales are 20% for cash and 80% on account.

3. 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. Februarys sales totaled $145,000, and Marchs sales totaled $205,000.

4. Inventory purchases are paid for within 15 days. Therefore, 50% of a months 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 $87,500.

5. Each months 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 $60,200.

6. Dividends of $21,000 will be declared and paid in April.

7. Land costing $29,000 will be purchased for cash in May.

8. The cash balance at March 31 is $43,000; the company must maintain a cash balance of at least $40,000 at the end of each month.

9. 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

The companys president is interested in knowing how reducing inventory levels and collecting accounts receivable sooner will impact the cash budget. He revises the cash collection and ending inventory assumptions as follows:

1. Sales continue to be 20% for cash and 80% on credit. However, credit sales from April, May, and June are collected over a three-month period with 25% collected in the month of sale, 65% collected in the month following sale, and 10% in the second month following sale. Credit sales from February and March are collected during the second quarter using the collection percentages specified in the main section.

2. The company maintains its ending inventory levels for April, May, and June at 15% of the cost of merchandise to be sold in the following month. The merchandise inventory at March 31 remains $60,200 and accounts payable for inventory purchases at March 31 remains $87,500.

Required:

1. Using the presidents new assumptions in (a) above, prepare a schedule of expected cash collections for April, May, and June and for the quarter in total.

2. Using the presidents new assumptions in (b) above, 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. Using the presidents new assumptions, prepare a cash budget for April, May, and June, and for the quarter in total.

April May June July $ 430,000 $ 960,000 $ 410,000 $ 310,000 301,000 672,000 287,000 217,000 129,000 288,000 123,000 93,000 Sales Cost of goods sold Gross margin Selling and administrative expenses: Selling expense Administrative expense* Total selling and administrative expenses Net operating income 83,000 91,000 52,000 40,500 53,600 32,600 123,500 144,600 84,600 $ 5,500 $ 143,400 $ 38,400 $ 31,000 29,000 60,000 33,000 Schedule of Expected Cash Collections April May June 86,000 $ 192,000 $82,000 Quarter Cash sales $ $ 360,000 0 0 Sales on account: February March April May June Total cash collections 23,200 114.800 34.400 0 0 32,800 240,800 x 76.800 x 68,800 537,600 32,800 721,200 23,200 147,600 344,000 614,400 32,800 $ 1,522,000 0 0 $ 258,400 $ 542,400 S June purchases budget for April, May, and June. Merchandise Purchases Budget April Budgeted cost of goods sold 301,000 Add: Desired ending merchandise inventory 134.400 435,400 Less: Beginning merchandise inventory 60,200 Required inventory purchases > > May S 672,000 57,400 729,400 134,400 Total needs 287,000 43.400 330,400 57,400 $ 273.000 $ 375,200 595,000 Using the president's new assumptions in (b) above, prepare the following for merchandise invent cash disbursements for merchandise purchases for April, May, and June and for the quarter in tota Schedule of Expected Cash Disbursements for Merchandise Purchases April May June Quarter Beginning accounts payable $ 43,000 $ 40,800 $ 40,500 $ 124,300 April purchases 156,100 234,150 390,250 May purchases 158,200 237,300 395,500 June purchases 142,800 142,800 Total cash disbursements $ 199, 100 $ 433,150 $ 420,600 $ 1,052,850 June May 40.800 $ 542,400 583,200 40,500 $ 697,600 738,100 Quarter 43,000 1,538,000 1.581.000 477,925 Garden Sales, Inc. Cash Budget For the Quarter Ended June 30 April Beginning cash balance S 43,000 $ Add collections from customers 258,400 Total cash available 301,400 Less cash disbursements: Purchases for inventory 258.300 Selling expenses 83,000 Administrative expenses 27,500 Land purchases Olvidonds pald 21,000 Total cash disbursements 389,800 Excess (deficiency) of cash available over disbursements (88.400) Financing Borrowings 146,000 Repayment 0 Interest 0 Total financing 146,000 Ending cash balance $ 57,600 $ 91,000 40,600 29.000 00 445,925 52.000 19,800 O 0 517.525 220,575 1,106,000 226,000 87.700 29.000 21,000 1,469,700 111,300 638,525 (55,325) 103.000 3 0 0 103.000 47 675 $ 0 (209.000) (6.440) (215,440) 5,135 249,000 (209.000) (6.440) 3 33,550 144,860 $