Homework Help is Here – Start Your Trial Now!
Business
Accounting
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

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

Entrepreneurial Finance
Entrepreneurial Finance
6th Edition
ISBN:9781337635653
Author:Leach
Publisher:Leach
Chapter6: Managing Cash Flow
Section: Chapter Questions
Problem 1EP
See similar textbooks
icon
Related questions
icon
Concept explainers
Question
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 April-July are: Sales Cost of goods sold Gross margin Selling and administrative expenses: Selling expense Administrative expense* Total selling and administrative expenses Net operating income "Includes $28,000 of depreciation each month. April May June July $ 600,000 $1,100,000 $ 560,000 $ 460,000 420,000 392,000 322,000 180,000 168,000 138,000 770,000 330,000 111,000 105,000 64,800 48,000 159,000 169,800 108, 600 $ 21,000 $ 160,200 $ 59,400 $ 67,000 41,600 46,000 44,000 90,000 48,000 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; 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 $260,000, and March's sales totaled $275,000. 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 $119,000. 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 $84,000. f. Dividends of $35,000 will be declared and paid in April. g. Land costing $43,000 will be purchased for cash in May. h. The cash balance at March 31 is $57,000; the company must maintain a cash 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 $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: a. 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. b. 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 $84,000 and accounts payable for inventory purchases at March 31 remains $119,000.
Transcribed Image Text: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 April-July are: Sales Cost of goods sold Gross margin Selling and administrative expenses: Selling expense Administrative expense* Total selling and administrative expenses Net operating income "Includes $28,000 of depreciation each month. April May June July $ 600,000 $1,100,000 $ 560,000 $ 460,000 420,000 392,000 322,000 180,000 168,000 138,000 770,000 330,000 111,000 105,000 64,800 48,000 159,000 169,800 108, 600 $ 21,000 $ 160,200 $ 59,400 $ 67,000 41,600 46,000 44,000 90,000 48,000 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; 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 $260,000, and March's sales totaled $275,000. 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 $119,000. 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 $84,000. f. Dividends of $35,000 will be declared and paid in April. g. Land costing $43,000 will be purchased for cash in May. h. The cash balance at March 31 is $57,000; the company must maintain a cash 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 $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: a. 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. b. 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 $84,000 and accounts payable for inventory purchases at March 31 remains $119,000.
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. Complete this question by entering your answers in the tabs below. Req 1 Beginning cash balance Add collections from customers Total cash available Less cash disbursements: Purchases for inventory Selling expenses Administrative expenses Land purchases Dividends paid Req 2A Using the president's new assumptions, prepare a cash budget for April, May, and June, and for the quarter in total. (Cash deficiency, repayments and interest should be indicated by a minus sign.) Borrowings Repayment Interest Req 2B Total financing Req 3 Total cash disbursements Excess (deficiency) of cash available over disbursements Financing: Answer is not complete. Garden Sales, Inc. Cash Budget For the Quarter Ended June 30 April S 57,000 $ 403,800 X 460,800 344,750 111,000 20,000✔ 35,000 X 510,750 (49,950) 90,000 X 90.000 May 40,050 S 774,000 X 814,050 582,400 105,000 36,800 43,000 X 767,200 46,850 0 June 46,850 844,000 890,850 547,400 67,000 13,600 628,000 262,850 (90,000) X (1,800) X (91 800) $ Quarter 57,000✔ 2,021,800 X 2,078,800 1,474,550 283,000✔ 70,400 35,000 X 43,000 X 1,905,950 172,850 90,000 X (90,000) X (1,800) X (1 800) www
Transcribed Image Text: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. Complete this question by entering your answers in the tabs below. Req 1 Beginning cash balance Add collections from customers Total cash available Less cash disbursements: Purchases for inventory Selling expenses Administrative expenses Land purchases Dividends paid Req 2A Using the president's new assumptions, prepare a cash budget for April, May, and June, and for the quarter in total. (Cash deficiency, repayments and interest should be indicated by a minus sign.) Borrowings Repayment Interest Req 2B Total financing Req 3 Total cash disbursements Excess (deficiency) of cash available over disbursements Financing: Answer is not complete. Garden Sales, Inc. Cash Budget For the Quarter Ended June 30 April S 57,000 $ 403,800 X 460,800 344,750 111,000 20,000✔ 35,000 X 510,750 (49,950) 90,000 X 90.000 May 40,050 S 774,000 X 814,050 582,400 105,000 36,800 43,000 X 767,200 46,850 0 June 46,850 844,000 890,850 547,400 67,000 13,600 628,000 262,850 (90,000) X (1,800) X (91 800) $ Quarter 57,000✔ 2,021,800 X 2,078,800 1,474,550 283,000✔ 70,400 35,000 X 43,000 X 1,905,950 172,850 90,000 X (90,000) X (1,800) X (1 800) www
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Budgeting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Entrepreneurial Finance
Entrepreneurial Finance
Finance
ISBN:
9781337635653
Author:
Leach
Publisher:
Cengage
Cornerstones of Cost Management (Cornerstones Ser…
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Managerial Accounting
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
Managerial Accounting: The Cornerstone of Busines…
Managerial Accounting: The Cornerstone of Busines…
Accounting
ISBN:
9781337115773
Author:
Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:
Cengage Learning
Financial And Managerial Accounting
Financial And Managerial Accounting
Accounting
ISBN:
9781337902663
Author:
WARREN, Carl S.
Publisher:
Cengage Learning,
SEE MORE TEXTBOOKS