Rock & Smith are a retailer of geological tools for at home rock collectors and are looking to prepare a quarterly cash budget (April June) to determine what months they will need to borrow. They have determine the following information: Rock & Smith have one large customer, that has separate payment terms from there other customers. This customer - Lava & Magma Ltd., pays 25% up front (month 1) & the remaining amount over two months, 45% in month two & 30% in month three. No interest is charged on this balance. All other sales are collected over a three month period with 70% in cash, 25% on credit collected the following month & 5% the third month. Sales to Lava & Magma are: February: $85,000 March: $140,000 April: $95,000 May: $150,000 June: $225,000 July: $110,000 Sales to all other customers are: February: $50,000 March: $75,000 April: $65,000 May: $105,000 June: $115,000 July: $90,000 Gross margin on Lava & Magma sales is 30%, gross margin on all other sales is 45%. Rock & Smith maintain ending inventory equal to 60% of next month's cost of goods sold for Lava & Magma sales & 20% for all other customers. They are using a new supplier this quarter, opening accounts payable for inventory on March 31 is $55,000 & beginning inventory for all sales on April 1 is $25,000. 45% is paid in the month inventory is ordered & 55% is paid in the following month . Selling & administrative costs are as follows (all paid in cash every month) o Commissions 7% of from Magma & Lava, 11% on all others o Rent $45,000 o Depreciation $5,000 o Others $18,000 Assume that the company can only borrow in $5,000 increments and at the beginning of the month, opening cash is $25,000, therefore if Rock & Smith projects that they will not have enough cash for the month they must borrow. Interest rate on borrowing is 2% Required: o Prepare a schedule of expected cash collections for the months that make up quarter 2 & for the total quarter (5 marks) o Prepare the purchases budget for the months that make up quarter 2 (5 marks) o Prepare the schedule of expected cash disbursements for purchases (5 marks) o Prepare the schedule of disbursements related to selling and administrative expenses (3 marks) o Prepare a cash budget using the above information (5 marks) o Determine what amounts need to be borrowed and in what month (2 marks) o Prepare a quarterly Income Statement