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:
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:
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Concept explainers
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Question
Please fix the wrong one
Transcribed Image Text: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.
Answer is not complete.
Complete this question by entering your answers in the tabs below.
Req 1
Cash sales
Sales on account:
February
March
April
May
June
Req 2A
Total cash
collections
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.
Req 2B
$
Schedule of Expected Cash Collections
May
220,000 $
S
April
120,000 $
Req 3
20,800 X
143,000 X
120,000✔
403,800
22,000 X
312,000✔
220,000✔
$ 774,000
June
112,000
48,000✔
572,000✔
112,000✔
$ 844,000
Quarter
$ 452,000
20,800
165,000
480,000
792,000
112,000
$ 2,021,800
Req 2A >
![Problem 8-25 (Algo) Cash Budget with Supporting Schedules; Changing Assumptions [LO8-2, LO8-4,
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 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
770,000 392,000
322,000
180,000
330,000
168,000
138,000
111,000
48,000
159,000
67,000
41,600
105,000
46,000
64,800
44,000
169,800 108,600
90,000
$ 21,000 $ 160,200 $ 59,400 $ 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.
1. 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:](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb0c53c3c-d25b-4f46-ae7f-d9559756d1d4%2Fb0156e52-4c19-4670-b3fc-40ee96953e5b%2Fh5y27ar_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Problem 8-25 (Algo) Cash Budget with Supporting Schedules; Changing Assumptions [LO8-2, LO8-4,
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 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
770,000 392,000
322,000
180,000
330,000
168,000
138,000
111,000
48,000
159,000
67,000
41,600
105,000
46,000
64,800
44,000
169,800 108,600
90,000
$ 21,000 $ 160,200 $ 59,400 $ 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.
1. 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:
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