Problem 9 23 Cash Budget with Supporting Schedules Changing Assumptions LO9 2, LO9 4, LO9 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 April July are April May June July Sales $ 440,000 $ 970,000 $ 420,000 $ 320,000 Cost of goods sold 308,000 679,000 294,000 224,000 Gross margin 132,000 291,000 126,000 96,000 Selling and administrative expenses Selling expense 85,000 92,000 53,000 32,000 Administrative expense 41,000 54,400 33,200 30,000 Total selling and administrative expenses 126,000 146,400 86,200 62,000 Net operating income $ 6,000 $ 144,600 $ 39,800 $ 34,000 Includes $14,000 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 February's sales totaled $150,000, and March's sales totaled $210,000 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 $89,600 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 $61,600 Dividends of $22,000 will be declared and paid in April Land costing $30,000 will be purchased for cash in May The cash balance at March 31 is $44,000 the company must maintain a cash balance of atleast $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 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 1 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 2 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 $61,600 and accounts payable for inventory purchases at March 31 remains $89,600 Required 1 Using the president's new assumptions in (1) above, use a schedule of expected cash collections for April, May, and June and for the quarter in total Week Two Hor The Home Depot ( X Homework Help C X ) National University X https ezto mheducation com hm tpx 0 6000096 2 The company maintains its ending inventory levels for April, May, and June at 15 of the cost of merchandise to be sold in the of expected cash collections for April, May, and June an Required 1 Using the president's new assumptions in (1) above, prepare a schedule Schedule of Expected Cash Collections April May June Quarter Cash sales Sales on account February March April May June Total cash collections 2 Using the president's new assumptions in (2) above, prepare the following for merchandise inventory 3 A merchandise purchases budget for April, May, and June Merchandise Purchases Budget April May June Budgeted cost of goods sold Total needs Required inventory purchases b A schedule of expected cash disbursements for merchandise purchases for April May, and June and for the quarter in total Schedule of Expected Cash Disbursements for Merchandise Purchases Beginning accounts payable April May June April purchases Quarter May purchases June purchases Total cash disbursements 3 Using the president's new assumptions, prepare a cash bud for the quarter in total (Cash deficiency

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Problem 9-23 Cash Budget with Supporting Schedules; Changing Assumptions [LO9-2, LO9-4, LO9-8] Garden Sales, Inc., sells garden supplies. Management is planning its cash needs for

Problem 9-23 Cash Budget with Supporting Schedules; Changing Assumptions [LO9-2, LO9-4, LO9-8]

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 April-July are:

April May June July

Sales $ 440,000 $ 970,000 $ 420,000 $ 320,000

Cost of goods sold 308,000 679,000 294,000 224,000

Gross margin 132,000 291,000 126,000 96,000

Selling and administrative expenses:

Selling expense 85,000 92,000 53,000 32,000

Administrative expense* 41,000 54,400 33,200 30,000

Total selling and administrative expenses 126,000 146,400 86,200 62,000

Net operating income $ 6,000 $ 144,600 $ 39,800 $ 34,000

*Includes $14,000 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. February's sales totaled $150,000, and March's sales totaled $210,000.
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 $89,600.
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 $61,600.
Dividends of $22,000 will be declared and paid in April.
Land costing $30,000 will be purchased for cash in May.
The cash balance at March 31 is $44,000; the company must maintain a cash balance of atleast $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.

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:

1. 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.

2. 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 $61,600 and accounts payable for inventory purchases at March 31 remains $89,600.

Required:

1. Using the president's new assumptions in (1) above, use a schedule of expected cash collections for April, May, and June and for the quarter in total.

Week Two Hor The Home Depot - ( X * Homework Help - C X ) National University X https://ezto.mheducation.com/hm.tpx?_=0.6000096 2. The company maintains its ending inventory levels for April, May, and June at 15% of the cost of merchandise to be sold in the of expected cash collections for April, May, and June an Required: 1. Using the president's new assumptions in (1) above, prepare a schedule Schedule of Expected Cash Collections April May June Quarter Cash sales Sales on account: February March April May June Total cash collections 2. Using the president's new assumptions in (2) above, prepare the following for merchandise inventory 3. A merchandise purchases budget for April, May, and June. Merchandise Purchases Budget April May June Budgeted cost of goods sold Total needs Required inventory purchases b. A schedule of expected cash disbursements for merchandise purchases for April. May, and June and for the quarter in total. Schedule of Expected Cash Disbursements for Merchandise Purchases Beginning accounts payable April May June April purchases Quarter May purchases June purchases Total cash disbursements 3 Using the president's new assumptions, prepare a cash bud for the quarter in total (Cash deficiency