Problem 8 22 Cash Budget with Supporting Schedules LO8 2, LO8 4, LO8 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 AprilJuly are April May June July Sales $ 540,000 $ 740,000 $ 440,000 $ 340,000 Cost of goods sold 378,000 518,000 308,000 238,000 Gross margin 162,000 222,000 132,000 102,000 Selling and administrative expenses Selling expense 74,000 94,000 55,000 34,000 Administrative expense 42,000 56,000 34,400 32,000 Total selling and administrative expenses 116,000 150,000 89,400 66,000 Net operating income $ 46,000 $ 72,000 $ 42,600 $ 36,000 Includes $16,000 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 80 collected in the first month following the month of sale and the remaining 10 collected in the second month following the month of sale Februarys sales totaled $160,000, and Marchs sales totaled $220,000 d Inventory purchases are paid for within 15 days Therefore, 50 of a months 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 $99,400 e Each months 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 $75,600 f Dividends of $24,000 will be declared and paid in April g Land costing $32,000 will be purchased for cash in May h The cash balance at March 31 is $46,000 the company must maintain a cash balance of atleast $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 Required 1 Prepare a schedule of expected cash collections for April, May, and June, and for the quarter in total 2 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 Prepare a cash budget for April, May, and June as well as in total for the quarter (Cash deficiency, repayments and interest should be indicated by a minus sign )

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Problem 8-22 Cash Budget with Supporting Schedules [LO8-2, LO8-4, LO8-8] Garden Sales, Inc., sells garden supplies. Management is planning its cash needs for the second

Problem 8-22 Cash Budget with Supporting Schedules [LO8-2, LO8-4, LO8-8]

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 AprilJuly are:

	April		May		June		July
Sales	$	540,000	$	740,000	$	440,000	$	340,000
Cost of goods sold		378,000		518,000		308,000		238,000

Gross margin		162,000		222,000		132,000		102,000

Selling and administrative expenses:
Selling expense		74,000		94,000		55,000		34,000
Administrative expense*		42,000		56,000		34,400		32,000

Total selling and administrative expenses		116,000		150,000		89,400		66,000

Net operating income	$	46,000	$	72,000	$	42,600	$	36,000

*Includes $16,000 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; 80% collected in the first month following the month of sale; and the remaining 10% collected in the second month following the month of sale. Februarys sales totaled $160,000, and Marchs sales totaled $220,000.
d.	Inventory purchases are paid for within 15 days. Therefore, 50% of a months 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 $99,400.
e.	Each months 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 $75,600.
f.	Dividends of $24,000 will be declared and paid in April.
g.	Land costing $32,000 will be purchased for cash in May.
h.	The cash balance at March 31 is $46,000; the company must maintain a cash balance of atleast $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.

Required:

Prepare a schedule of expected cash collections for April, May, and June, and for the quarter in total.

2.	Prepare the following for merchandise inventory:

A merchandise purchases budget for April, May, and June.

A schedule of expected cash disbursements for merchandise purchases for April, May, and June, and for the quarter in total.

3.	Prepare a cash budget for April, May, and June as well as in total for the quarter. (Cash deficiency, repayments and interest should be indicated by a minus sign.)