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 Sales $580.000 $780,000 $400,000 5380 000 Cost of goods sold 406,000 546,000 280,000 266,000 Gross margin 174,000 234 000 120.000 114 000 Selling and administrative expenses Seling exponse 78,000 98.000 59,000 38,000 Administrative expense" 44000 59.200 36.800 36.000 Total selling and administrative expenses 122.000 157 200 95 800 74 000 Net operating income 5 152.000 $ 76 800 $ 24 200 $10.000 includes $21,000 or depreciation each month Sales ate 20% for cash and 80% on account Sales on account are collected over a three-month penod 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 or sale February's sales Totated 5195,000 and March's sales totaled $240 000 a 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 150% is paid in the following month. Accounts payable at March 31 for inventory purchases during March total $107 800 e Each month's ending inventory must equal 20% of the cost of the merchandise to be sold in the following month The merchandise mentor at March 31 is $81200 1 Dividends of $20,000 will be declared and paid in April Land costing $36000 will be purchased for cash in May n The cash balance at March 31 in 550.000 the company must maintain a cash balance of at least 540.000 at the end of each month The company has an agreement with a local bank trat 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 toans is 19 per month and for simplicity we will assume that interest is not compounded. The company would star 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 Apr May and June and for the quarter in total * Answer is complete but not entirely correct. Schedule of Expected and Collection Schedule of Expected Cash Collections April May June $ 116,000$ 156,000 80,000 Quarter 352,000 Cash sales Sales on account: 31,200 134,400 116,000 February March April May June Total cash collections 31,200 38,400 172.800 301,600 X 46 400 x 464.000 156,000 X 405,600 561,600 80,000 X 80.000 $ 652.000 $ 612.000 $ 1,661,600 $ 397,600 2. Prepare the following for merchandise inventory a. A merchandise purchases budget for April, May, and June. Answer is complete but not entirely correct. April Merchandise Purchases Budget May June $ Budgeted cost of goods sold 406.000 546,000 280.000 Add Desired ending merchandise inventory 81 900 X 42.000 x 39.900 Total needs 487.900 588.000 319.900 Less Beginning merchandise inventory 81200 81,900 $ 42.000 $ Required inventory purchases 406.700 506.100 277.900 b. A schedule of expected cash disbursements for merchandise purchases for April, May, and June and for the quarter in total IS Answer is complete but not entirely correct. Schedule of Expected Cash Disbursements for Merchandise Purchases April May Quarter Beginning accounts $ 107,800 107 800 payable April purchases 203 350 203,350 406 700 May purchases 253 050 253,050 506.100 June purchases 138,950 138.950 Total cash S 311.150 $ $ 456,400 392,000 disbursements 5 1.159 550 3. Prepare a cash budget for April, May, and June as well as in total for the quarter. (Cash deficiency, repayments and int by a minus sign.) Answer is complete but not entirely correct. May S 40,200 652,000 692,200 June 40 200 612,000 652,200 Quarter 50,000 1,952,400 X 2,002,400 Garden Sales, Inc. Cash Budget For the Quarter Ended June 30 April Beginning cash balance $ 50.000 Is Add collections from customers 397 600 Total cash available 447,600 Less cash disbursements: Purchases for inventory 311 150 Selling expenses 78,000 Administrative expenses 34.000 Land purchases 0 Dividends paid 28,000 Total cash disbursements 451.150 Excess (deficiency) of cash available over (3.550) disbursements Financing Borrowings 43 550 Repayment Interest Total financing 43.550 Ending cash balance 15 40.000 456 400 $ 98,000 38,800 3 36.000 0 392.000 X 59,000 22,200 0 1.159,550 X 235,000 95,000 36.000 x SI 08 XSIS 0 28,000 1553 550 629 200 63.000 473,200 179.000 448,850 0 38 44,000 1:320 X 45,320 S 224 320 5 44,000 $ (44,000) (1320) (1320) 447 530 0 63.000