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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:

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:

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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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 >
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:
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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