Garden Sales, Incorporated, sells garden supplies, Management is planning ins 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 ocrur duting 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 Apri-july are b. Sales are 20% for cash and 80% on account. c. Sales on account are collected over a three-month period with iow collected in the month of sale 70 . collected in the first month following the month of sale, and the remaning 209 collected in the second month following the month of sale. February a sales totaled $260,000 and March s sales totaled $275.000 d. Inventory purchases are paic for within is days. Therefore 50% of a montis inventory purchases are paid tor in the month of puichase. The remaining 50% is paid in the following month. Accounts poyoble at March 31 for inverifory ourchases during March total $119,000. e. Each month's ending inventory must equal 20% of the cost of the merchandise to be sold in the following month. The merchandise inveritory at March 31 is $84.000. f. Dividends of $35,000 will be declared and paid in April 9. Land costing $43,000 will be purchased for cash in May. h. The cash balance at March 31 is $57,000; the company must maintain a cash balance of at least $40,000 at the end of each month. 1. The company has an agreement with a local bark 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 simpticity 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 endirig 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 threemonth 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 callected during the second quarter using the collection percentages specified in the main section. b. The company maintains its ending inventory levels for Aprk, May, and June at 15% of the cost of merchandise to be sold in the following month. The merchandise inventory at March 31 remains $84.000 and accounts payable for inventory purchases at March 31 remains $119,000 Hhat atiultio tue tover apectatis tief ture sertaon. Garden Sales, Incorporated, sells garden supplies, Management is planning ins 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 ocrur duting 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 Apri-july are b. Sales are 20% for cash and 80% on account. c. Sales on account are collected over a three-month period with iow collected in the month of sale 70 . collected in the first month following the month of sale, and the remaning 209 collected in the second month following the month of sale. February a sales totaled $260,000 and March s sales totaled $275.000 d. Inventory purchases are paic for within is days. Therefore 50% of a montis inventory purchases are paid tor in the month of puichase. The remaining 50% is paid in the following month. Accounts poyoble at March 31 for inverifory ourchases during March total $119,000. e. Each month's ending inventory must equal 20% of the cost of the merchandise to be sold in the following month. The merchandise inveritory at March 31 is $84.000. f. Dividends of $35,000 will be declared and paid in April 9. Land costing $43,000 will be purchased for cash in May. h. The cash balance at March 31 is $57,000; the company must maintain a cash balance of at least $40,000 at the end of each month. 1. The company has an agreement with a local bark 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 simpticity 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 endirig 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 threemonth 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 callected during the second quarter using the collection percentages specified in the main section. b. The company maintains its ending inventory levels for Aprk, May, and June at 15% of the cost of merchandise to be sold in the following month. The merchandise inventory at March 31 remains $84.000 and accounts payable for inventory purchases at March 31 remains $119,000 Hhat atiultio tue tover apectatis tief ture sertaon
