Problem 7-22A Cash Budget with Supporting Schedules [LO7-2, LO7-4, LO7-8] Garden
ID: 2394991 • Letter: P
Question
Problem 7-22A Cash Budget with Supporting Schedules [LO7-2, LO7-4, LO7-8]
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:
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 $125,000, and March’s sales totaled $225,000.
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 $101,500.
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 $77,000.
The cash balance at March 31 is $47,000; the company must maintain a cash balance of atleast $40,000 at the end of each month.
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.
Prepare a schedule of expected cash collections for April, May, and June, and for the quarter in total.
Prepare the following for merchandise inventory:
A merchandise purchases budget for April, May, and June.
A schedule of expected cash disbursements for merchandise purchases for April, May, and June, and for the quarter in total.
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., 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:
Explanation / Answer
1) Schedule of Expected cash collection April May June Quarter Cash sales 110000 140000 45000 295000 Sales on account February (100000*10%) 10000 10000 March (180000*80%;10%) 144000 18000 162000 April (440000*10%;80%;10%) 44000 352000 44000 440000 May (560000*10%;80%) 56000 448000 504000 June (180000*10%) 18000 18000 Total cash collections 308000 566000 555000 1429000 2) Merchandise purchase budget April May June Budgeted cost of goods sold 385,000 490,000 157,500 Add: ending inventory 98000 31500 49000 Total needs 483,000 521,500 206,500 less:Beginning inventory 77,000 98,000 31,500 Required inventory purchases 406,000 423,500 175,000 b) Schedule of Expected Cash Disbursements for Merchandise purchase April May June Quarter Beginning accounts payable 101,500 101,500 April purchases 203000 203000 406000 May purchases 211750 211750 423500 June purchases 87500 87500 total cash disbursements 304,500 414750 299250 1,018,500 3) Cash budget April May June Quarter Beginning cash balance 47,000 40,500 40,250 47,000 Add collections from customers 308000 566000 555000 1429000 total cash available 355,000 606500 595250 1476000 less cash Disbursements purchase of inventory 304,500 414750 299250 1,018,500 selling expenses 75,000 119,000 27,500 221,500 administrative expenses 28000 53500 10500 92000 land purchases 0 33,000 0 33000 dividends paid 25,000 0 0 25,000 total cash disbursements 432,500 620250 337250 1,390,000 Excess(Deficiency)of cash available -77,500 -13750 258000 86,000 Financing Borrowing 118,000 54,000 0 172,000 Repayment 0 0 -172,000 -172000 interest 0 0 -4,620 -4620 total financing 118,000 54,000 -176620 -4,620 ending cash balance 40,500 40,250 81380 81,380 interest = 118000*1%*3 3540 54000*1%*2 1080 4620