Garden Sales, Incorporated, 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:

Sale

Cost of goods sold

Gross margin

Selling and administrative expenses:

Selling expense

Administrative expense$*$

Total selling and administrative expenses

Net operating income

$*$Includes $$18,000$ 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 $$175,000,$ and March's sales totaled $$230,000.$

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 $$98,000.$

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 $$67,200.$

f$.$ Dividends of $$26,000$ will be declared and paid in April.

g$.$ Land costing $$34,000$ will be purchased for cash in May.

h$.$ The cash balance at March $31$ is $$48,000$; the company must maintain a cash balance of at least $$40,000$ at the end of

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

The company's 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:

a$.$ 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.

b$.$ 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 $$67,200$ and accounts payable for inventory purchases at March

$31$ remains $$98,000$

Required:

Using the president's new assumptions in $($a$)$ above, prepare a schedule of expected cash collections for April, May, and June and for

the quarter in total.

Using the president's 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

Using the president's new assumptions, prepare a cash budget for April, May, and June, and

for the quarter in total.