Problem 6-25 [Algo} Cash Budget with Supporting Schedules: Changing Assumptions [LOB-2, LOB-4, LOB-8] Garden Salesr |nc., 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 AprilJuly are: April May June July Sales $ 566,666 51,636,666 5 466,666 $ 336,666 Cost of goods sold 356,666 t21,oeo 336,666 265,666 Gross margin 156,666 369,666 144,666 114,666 Selling and administrative expenses: Selling expense 92,666 96,666 59,666 36,666 Administrative expense\" 44,666 59,266 36,666 35,666 Total selling and administrative expenses 141,666 152,266 95,666 24,666 Net operating income $ 9,666 5 151,666 5 48,266 $ 46,666 ' *lncludes $21,666 of depreciation each month. b. Sales are 26% for cash and 66% on account. c. Sales on account are collected over a threemonth period with 16% collected in the month of sale; 76% collected in the first month following the month of sale; and the remaining 26% collected in the second month following the month of sale. Feanary's sales totaled $195,666, and March's sales totaled $246,666. d. Inventory purchases are paid for within 15 days. Therefore, 56% ofa month's inventory purchases are paid for in the month of purchase. The remaining 56% is paid in the following month. Accounts payable at March 31 for inventory purchases during March total $162,266. e. Each month's ending inventory must equal 26% of the cost of the merchandise to be sold in the following month. The merchandise inventory at March 31 is $?6,666. f. Dividends of $28,666 will be declared and paid in April. g. Land costing $36,666 will be purchased for cash in May. h. The cash balance at March 3| is $56,666; the company must maintain a cash balance of at least $46,666 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 $1,666 at the beginning of each month, up to a total loan balance of $266,666. 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: 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, 55% 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 specied in the main section. b. The company maintains its ending inventory levels for Aprilr May, and June at 15% ofthe cost of merchandise to be sold in the following month. The merchandise inventory at March 3'1 remains $T0,000 and accounts payable for inventory purchases at March 3| remains $102,200. 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 quarterin 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. Con-Ilene lis queslion by entering you- answers it the tabs below. Using the president's new assumptions in {a} above, prepare a schedule of exported cash collections for April, May, and June and for lite quarter in total. -i-i March . 30,400 1?2,000 April 100,000 100,000 2,500,000 2,500,000 00,000 00,000 Tolalcash colleclions $ 365,600 $ 2,050,400 $ 192,000 $ 3,400,000 Reg 2A ) Complete this question by entering your answers in the tabs below. Req 1 Req 2A Req 2B Req 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 May June Quarter Beginning cash balance 50,000 50,000 Add collections from customers 305,600 Total cash available 355,600 0 0 50,000 Less cash disbursements: Purchases for inventory Selling expenses 97,000 98,000 59,000 254,000 Administrative expenses 23,000 38,200 15,800 77,000 Land purchases 0 36,000 36,000 Dividends paid 28,000 0 0 28,000 Total cash disbursements 148,000 172,200 74,800 395,000 Excess (deficiency) of cash available over disbursements 207,600 (172,200) (74,800) (345,000) Financing Borrowings Repayment 0 0 Interest 0 Total financing 0 0 Ending cash balance 207,600 (172,200) $ (74,800) $ (345,000)