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Problem 8-25 Cash Budget with Supporting Schedules; Changing Assumptions [LO8-2, L08-4, L08-8] 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: July April May June $ 590,000 $1,090,000 $ 550,000 $ 450,000 413,000 763, 000 385,000 315,000 177,000 327,000 165,000 135,000 Sales Cost of goods sold Gross margin Selling and administrative expenses: Selling expense Administrative expense* Total selling and administrative expenses Net operating income 109,000 47,500 156,500 $ 20,500 $ 104,000 66,000 45,000 64,000 40,400 43,000 168,000 206,400 88,000 159,000 $ 58,600 $ 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 $116,900. 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 $82,600. 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 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 $82,600 and accounts payable for inventory purchases at March 31 remains $116,900. Required: 1. 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. 2. 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. 3. Using the president's new assumptions, prepare a cash budget for April, May, and June, and for the quarter in total. Complete this question by entering your answers in the tabs below. Reg 1 Req 2A Req 2B Req3 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. Schedule of Expected Cash Collections April May June $ 118,000 $ 218,000 $ 110,000 $ Quarter Cash sales 446,000 Sales on account: February March 40,800 151,200 118,000 43,200 40,800 194,400 472,000 306,800 218.000 47,200 566,800 784,800 April May June Total cash collections 110,000 110,000 834,000 $ 428,000 $ 786,000 EA $ 2,048,000 Req 2A > Reg 1 Reg 2A Reg 2B Req3 Using the president's new assumptions in (b) above, prepare the following for merchandise inventory, a merchandise purchases budget for April, May, and June. June Merchandise Purchases Budget April May Budgeted cost of goods sold $ 413.000 $ 763,000 $ 385,000 Add: Desired ending merchandise inventory 114 450 57.750 Total needs 527,450 820,750 385,000 Less: Beginning merchandise inventory 114.450 57,750 Required inventory purchases $ 444,850 $ 706,300 $ 327,250 82.600 Req 1 Req 2A Reg 2B Req3 Using the president's new assumptions in (b) above, 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. Quarter 116,900 Schedule of Expected Cash Disbursements for Merchandise Purchases April May June Beginning accounts payable $ 116,900 $ April purchases 222.425 222,425 May purchases 353,150 353,150 June purchases Total cash disbursements $ 339,325 $ 575,575 $ 353.150 $ 444,850 706,300 0 1,268,050 ( Req 2A Req3 > Req 1 Req 2A Req 2B Reg 3 Using the president's new assumptions, prepare a cash budget for April, May, and June, and for the quarter in total. (Cash deficiency, repayments and interest should be indicated by a minus sign.) Garden Sales, Inc. Cash Budget For the Quarter Ended June 30 April $ 56,000 $ 428,000 484,000 June Quarter May 40,175 $ 786,000 826.175 43,400 $ 834,000 877,400 56,000 2,048,000 2,104,000 339.325 575,575 Beginning cash balance Add collections from customers Total cash available Less cash disbursements: Purchases for inventory Selling expenses Administrative expenses Land purchases Dividends paid T-i-l see di bien a == on 9 C70 C70 JJJJ21 575,575 0 0 FulldSES TUT ITIVUTILUTY 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 339,325 144.675 250,600 877,400 2,104,000 0 0 0 $ 144.675 $ 250.600 $ 877,400 $ 2.104.000 & Req 2B