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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: April May June July Sales Cost of goods sold Gross margin Selling and administrative expenses: Selling expense Administrative expense* Total selling and administrative expenses Net operating income $ 600,000 $ 900,000 $ 500,000 $ 400,000 420,000 180,000 630,000 350,000 270,000 150,000 280,000 120,000 79,000 45,000 124,000 120,000 62,000 52,000 41,000 172,000 103,000 $ 56,000 $ 98,000 $ 47,000 $ 31,000 51,000 38, 000 89,000 "Includes $20,000 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; 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 $200,000, and March's sales totaled $300,000. 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 $126,0000. e. Each month's ending inventory must equal 20% of the cost of the merchandise to be sold inventory at March 31 is $84,000. the following month. The merchandise Diddendeaf &A0000 hadeelnsnd a nd 1i Anl

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: April May June July Sales Cost of goods sold Gross margin Selling and administrative expenses: Selling expense Administrative expense* Total selling and administrative expenses Net operating income $ 600,000 $ 900,000 $ 500,000 $ 400,000 420,000 180,000 630,000 350,000 270,000 150,000 280,000 120,000 79,000 45,000 124,000 120,000 62,000 52,000 41,000 172,000 103,000 $ 56,000 $ 98,000 $ 47,000 $ 31,000 51,000 38, 000 89,000 "Includes $20,000 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; 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 $200,000, and March's sales totaled $300,000. 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 $126,0000. e. Each month's ending inventory must equal 20% of the cost of the merchandise to be sold inventory at March 31 is $84,000. the following month. The merchandise Diddendeaf &A0000 hadeelnsnd a nd 1i Anl

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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**Budgeting and Cash Flow Management for Garden Sales, Inc.** Garden Sales, Inc., a company that sells garden supplies, is planning its cash needs for the second quarter due to typical peak sales of lawn care equipment in May. The following financial information has been compiled for cash budget preparation: ### a. Budgeted Monthly Absorption Costing Income Statements (April–July) | | April | May | June | July | |-----------------|----------|----------|----------|----------| | Sales | $600,000 | $900,000 | $500,000 | $400,000 | | Cost of Goods Sold | 420,000 | 630,000 | 350,000 | 280,000 | | Gross Margin | 180,000 | 270,000 | 150,000 | 120,000 | | Selling & Administrative Expenses: | | | | | | - Selling Expense | 79,000 | 120,000 | 62,000 | 51,000 | | - Administrative Expense* | 45,000 | 52,000 | 41,000 | 38,000 | | Total Selling & Administrative Expenses | 124,000 | 172,000 | 103,000 | 89,000 | | Net Operating Income | $56,000 | $98,000 | $47,000 | $31,000 | *Includes $20,000 of depreciation each month. ### b. Sales Details - 20% of sales are for cash, while 80% are on account. ### c. Collection of Sales on Account - Collections occur over a three-month period: - 10% in the month of sale. - 70% in the first month after the sale. - 20% in the second month after the sale. - February sales: $200,000 - March sales: $300,000 ### d. Inventory Purchases - Inventory purchases are paid within 15 days: - 50% of monthly inventory purchases are paid in the purchase month. - Remaining 50% is paid the following month. - Accounts payable as of March 31 for inventory purchases: $126,000 ### e. Inventory Costs - Each month’s ending inventory costs
Transcribed Image Text:**Budgeting and Cash Flow Management for Garden Sales, Inc.** Garden Sales, Inc., a company that sells garden supplies, is planning its cash needs for the second quarter due to typical peak sales of lawn care equipment in May. The following financial information has been compiled for cash budget preparation: ### a. Budgeted Monthly Absorption Costing Income Statements (April–July) | | April | May | June | July | |-----------------|----------|----------|----------|----------| | Sales | $600,000 | $900,000 | $500,000 | $400,000 | | Cost of Goods Sold | 420,000 | 630,000 | 350,000 | 280,000 | | Gross Margin | 180,000 | 270,000 | 150,000 | 120,000 | | Selling & Administrative Expenses: | | | | | | - Selling Expense | 79,000 | 120,000 | 62,000 | 51,000 | | - Administrative Expense* | 45,000 | 52,000 | 41,000 | 38,000 | | Total Selling & Administrative Expenses | 124,000 | 172,000 | 103,000 | 89,000 | | Net Operating Income | $56,000 | $98,000 | $47,000 | $31,000 | *Includes $20,000 of depreciation each month. ### b. Sales Details - 20% of sales are for cash, while 80% are on account. ### c. Collection of Sales on Account - Collections occur over a three-month period: - 10% in the month of sale. - 70% in the first month after the sale. - 20% in the second month after the sale. - February sales: $200,000 - March sales: $300,000 ### d. Inventory Purchases - Inventory purchases are paid within 15 days: - 50% of monthly inventory purchases are paid in the purchase month. - Remaining 50% is paid the following month. - Accounts payable as of March 31 for inventory purchases: $126,000 ### e. Inventory Costs - Each month’s ending inventory costs
**Text Transcription for Educational Website:** --- 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 $200,000, and March’s sales totaled $300,000. 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 $126,000. 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 $49,000 will be declared and paid in April. g. Land costing $16,000 will be purchased for cash in May. h. The cash balance at March 31 is $52,000; 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. **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. 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. ---
Transcribed Image Text:**Text Transcription for Educational Website:** --- 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 $200,000, and March’s sales totaled $300,000. 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 $126,000. 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 $49,000 will be declared and paid in April. g. Land costing $16,000 will be purchased for cash in May. h. The cash balance at March 31 is $52,000; 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. **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. 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. ---
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