Problem 8-25 (Algo) Cash Budget with Supporting Schedules: Changing Assumptions (LO8-2, L08-4, 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 soles 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 April-July are: April May une July $ 420,eee $950,000 $400,00 zee, 000 294,00 669,00 280,Bee 210,000 125.000 299,00 120,000 90 Dee Sales Cost of goods sold Gross margin Selling and administrative expenses : Selling expense Administrative expense" Total selling and administrative expenses Net operating income 81,ce 90,000 40 cee 52,800 121 Bee 142 gee 5 5 Bee 142 2003 51,900 32.ee 93, 37 Bees 30,000 28, Bee 59,00 22.000 *Includes $12,000 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: 709. 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 $140,000, and March's sales totaled $200.000. 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 $85.400 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 $58,800. Dividends of $20,000 will be declared and paid in April. g. Land costing $28.000 will be purchased for cash in May. h. The cash balance at March 31 is $42,000; the company must maintain a cosh 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 $1000 ot the beginning of each month, up to a total loan balance of $200,000. The interest rate on these loans is 196 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: 6. 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 sole, 659e collected in the month following sale, and 109 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. Moy. ond June at 15% of the cost of merchandise to be sold in the following month. The merchandise inventory at March 31 remains $58,800 and accounts payable for inventory purchases at March 31 remains $85,400. 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