Problem 8 24 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 Budgeted monthly absorption costing income statements for AprilJuly are April May June July Sales $ 580,000 $ 780,000 $ 400,000 $ 380,000 Cost of goods sold 406,000 546,000 280,000 266,000 Gross margin 174,000 234,000 120,000 114,000 Selling and administrative expenses Selling expense 78,000 98,000 59,000 38,000 Administrative expense 44,000 59,200 36,800 36,000 Total selling and administrative expenses 122,000 157,200 95,800 74,000 Net operating income $ 52,000 $ 76,800 $ 24,200 $ 40,000 Includes $21,000 of depreciation each month Sales are 20 for cash and 80 on account 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 Februarys sales totaled $195,000, and Marchs sales totaled $240,000 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 $107,800 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 $81,200 Dividends of $28,000 will be declared and paid in April Land costing $36,000 will be purchased for cash in May The cash balance at March 31 is $50,000 the company must maintain a cash balance of at least $40,000 at the end of each month 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 Garrison 16e Rechecks 2018 11 16 This is the last question in the assignment To submit, use Alt S To access other questions, proceed to the question map button Next Visit question map Question 6 of 6 Total 6 of 6

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Jul 19, 2024

Problem 8-24 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 8-24 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:

Budgeted monthly absorption costing income statements for AprilJuly are:

	April		May		June		July
Sales	$	580,000	$	780,000	$	400,000	$	380,000
Cost of goods sold		406,000		546,000		280,000		266,000
Gross margin		174,000		234,000		120,000		114,000
Selling and administrative expenses:
Selling expense		78,000		98,000		59,000		38,000
Administrative expense*		44,000		59,200		36,800		36,000
Total selling and administrative expenses		122,000		157,200		95,800		74,000
Net operating income	$	52,000	$	76,800	$	24,200	$	40,000

*Includes $21,000 of depreciation each month.

Sales are 20% for cash and 80% on account.
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. Februarys sales totaled $195,000, and Marchs sales totaled $240,000.
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 $107,800.
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 $81,200.
Dividends of $28,000 will be declared and paid in April.
Land costing $36,000 will be purchased for cash in May.
The cash balance at March 31 is $50,000; the company must maintain a cash balance of at least $40,000 at the end of each month.
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.

Garrison 16e Rechecks 2018-11-16

This is the last question in the assignment. To submit, use Alt + S. To access other questions, proceed to the question map button.Next Visit question map

Question 6 of 6 Total6 of 6