# Garden Sales, Inc., sells gard

## Problem 8-24 Cash Budget with Supporting Schedules [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:

1. Budgeted monthly absorption costing income statements for April–July are:

 April May June July Sales \$ 510,000 \$ 710,000 \$ 410,000 \$ 310,000 Cost of goods sold 357,000 497,000 287,000 217,000 Gross margin 153,000 213,000 123,000 93,000 Selling and administrative expenses: Selling expense 71,000 91,000 52,000 31,000 Administrative expense* 40,500 53,600 32,600 29,000 Total selling and administrative expenses 111,500 144,600 84,600 60,000 Net operating income \$ 41,500 \$ 68,400 \$ 38,400 \$ 33,000

*Includes \$13,000 of depreciation each month.

1. Sales are 20% for cash and 80% on account.

2. Sales on account are collected over a three-month period with 10% collected in the month of sale; 80% collected in the first month following the month of sale; and the remaining 10% collected in the second month following the month of sale. February’s sales totaled \$145,000, and March’s sales totaled \$205,000.

3. 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 \$93,100.

4. 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 \$71,400.

5. Dividends of \$21,000 will be declared and paid in April.

6. Land costing \$29,000 will be purchased for cash in May.

7. The cash balance at March 31 is \$43,000; the company must maintain a cash balance of at least \$40,000 at the end of each month.

8. 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. 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.

# Garden Sales, Inc., sells gard

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:

1. Budgeted monthly absorption costing income statements for April–July are:

 April May June July Sales \$ 590,000 \$ 1,090,000 \$ 550,000 \$ 450,000 Cost of goods sold 413,000 763,000 385,000 315,000 Gross margin 177,000 327,000 165,000 135,000 Selling and administrative expenses: Selling expense 109,000 104,000 66,000 45,000 Administrative expense* 47,500 64,000 40,400 43,000 Total selling and administrative expenses 156,500 168,000 106,400 88,000 Net operating income \$ 20,500 \$ 159,000 \$ 58,600 \$ 47,000

*Includes \$27,000 of depreciation each month.

1. Sales are 20% for cash and 80% on account.

2. 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 \$255,000, and March’s sales totaled \$270,000.

3. 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 \$116,900.

4. 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 \$82,600.

5. Dividends of \$34,000 will be declared and paid in April.

6. Land costing \$42,000 will be purchased for cash in May.

7. The cash balance at March 31 is \$56,000; the company must maintain a cash balance of at least \$40,000 at the end of each month.

8. 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:

1. 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.

2. 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 \$82,600 and accounts payable for inventory purchases at March 31 remains \$116,900.

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.

# Garden Sales, Inc., sells gard

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:

1. Budgeted monthly absorption costing income statements for April–July is:

 April May June July Sales \$ 500,000 \$ 700,000 \$ 400,000 \$ 300,000 Cost of goods sold 350,000 490,000 280,000 210,000 Gross margin 150,000 210,000 120,000 90,000 Selling and administrative expenses: Selling expense 70,000 90,000 51,000 30,000 Administrative expense* 40,000 52,800 32,000 28,000 Total selling and administrative expenses 110,000 142,800 83,000 58,000 Net operating income \$ 40,000 \$ 67,200 \$ 37,000 \$ 32,000

*Includes \$12,000 of depreciation each month.

1. Sales are 20% for cash and 80% on account.

2. Sales on account are collected over a three-month period with 10% collected in the month of sale; 80% collected in the first month following the month of sale; and the remaining 10% collected in the second month following the month of sale. February’s sales totaled \$140,000, and March’s sales totaled \$200,000.

3. 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 \$91,000.

4. 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 \$70,000.

5. Dividends of \$20,000 will be declared and paid in April.

6. Land costing \$28,000 will be purchased for cash in May.

7. The cash balance at March 31 is \$42,000; the company must maintain a cash balance of at least \$40,000 at the end of each month.

8. 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. 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.

Prepare a schedule of expected cash collections for April, May, and June, and for the quarter in total.

 Schedule of Expected Cash Collections April May June Quarter Cash sales \$100,000 \$140,000 \$80,000 \$320,000 Sales on account: February 22,400 22,400 March 128,000 160,000 288,000 April 40,000 320,000 40,000 400,000 May 56,000 448,000 504,000 June 32,000 32,000 Total cash collections \$290,400 \$676,000 \$600,000 \$1,566,400

Prepare the following for merchandise inventory, a merchandise purchases budget for April, May, and June.

 Merchandise Purchases Budget April May June Budgeted cost of goods sold \$350,000 \$490,000 \$280,000 Add: Desired ending merchandise inventory 98,000 56,000 42,000 Total needs 448,000 546,000 322,000 Less: Beginning merchandise inventory 91,000 98,000 56,000 Required inventory purchases \$357,000 \$448,000 \$266,000

Prepare the following for merchandise inventory, a schedule of expected cash disbursements for merchandise purchases for April, May, and June, and for the quarter in total.

 Schedule of Expected Cash Disbursements for Merchandise Purchases April May June Quarter Beginning accounts payable \$49,000 \$49,000 April purchases 178,500 178,500 357,000 May purchases 224,000 224,000 448,000 June purchases 133,000 133,000 Total cash disbursements \$227,500 \$402,500 \$357,000 \$987,000

Prepare a cash budget for April, May, and June as well as in total for the quarter. (Cash deficiency, repayments and interest should be indicated by a minus sign.)

 Garden Sales, Inc. Cash Budget For the Quarter Ended June 30 April May June Quarter Beginning cash balance \$42,000 \$40,000 \$40,000 \$122,000 Add collections from customers 290,400 676,000 600,000 1,566,400 Total cash available 332,400 716,000 640,000 1,688,400 Less cash disbursements: Purchases for inventory Selling expenses Administrative expenses Land purchases Dividends paid Total cash disbursements 0 0 0 0 Excess (deficiency) of cash available over disbursements 332,400 716,000 640,000 1,688,400 Financing: Borrowings Repayment Interest Total financing 0 0 0 0 Ending cash balance \$332,400 \$716,000 \$640,000 \$1,688,400

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