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(Solution Download) Garden Sales, Inc., sells garden supplies. Management is planning its cash needs for the second quar


 

 

 

 

 

 

 

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 AprilAc??oJuly are:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

April

 

May

 

June

 

July

  Sales$

 

810,000  

$950,000$650,000$560,000
  Cost of goods

 

sold

567,000665,000455,000392,000
  Gross margin243,000285,000195,000168,000
  Selling and

 

administrative expenses:

 

       Selling expense

95,000114,00076,00056,000

 

       Administrative

 

expense*

52,50074,20047,00053,000
  Total selling and

 

administrative expenses

147,500188,200123,000109,000
  Net operating

 

income

$

 

95,500  

$96,800$72,000$59,000

 

 

 

 

 

 

 

*Includes $37,000 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. FebruaryAc??cs sales

 

totaled $305,000, and MarchAc??cs sales totaled $320,000.

 

d.

 

Inventory purchases are paid for within 15 days. Therefore, 50%

 

of a monthAc??cs 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 $146,300.

 

e.

 

Each monthAc??cs 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 $113,400.

 

f.Dividends of $44,000 will be

 

declared and paid in April.

g.Land costing $56,000 will be

 

purchased for cash in May.

h.

 

The cash balance at March 31 is $66,000; the company must

 

maintain a cash balance of atleast $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.

 

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. (Cash deficiency, repayments and

 

interest should be indicated by a minus sign.)

 

 

 

 


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