Problem 8-22 Cash Budget with Supporting Schedules [LO8-2, LO8-4, LO8-8] Garden
ID: 2521283 • Letter: P
Question
Problem 8-22 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:
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 $200,000, and March’s sales totaled $300,000.
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 $126,000.
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.
The cash balance at March 31 is $52,000; 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.)
Garrison 15e Recheck 2015-01-16
References
eBook & Resources
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
Answer:
1
schedule of expected cash collection for April May and June and for the Quarter Total
April
May
June
Quarter Totals
Cash Sales
120,000
180,000
100,000
400,000
February 200,000
200,000 x 80% x 20% = 32,0000
32,000
March 300,000
300,000 x 80% x 70% = 168,000
300,000 x 80% x 20% =48,000
216,000
April 600,000
600,000 x 80% x 10% = 48,000
600,000 x 80% x 70% = 336,000
600,000 x 80% x 20% = 96,000
480,000
May 900,000
900,000 x 80% x 10% = 72,000
900,000 x 80% x 20% = 96,000
576,000
June 500,000
500,000 x 80% x 10% = 40,000
40,000
Total Cash Collections
$368,000
$636,000
$740,000
$1,744,000
2
a)
Merchandise purchases budget for April, May, and June
April
May
June
Cost of goods sold
420,000
630,000
350,000
Add: Ending merchandise inventory
630,000 x 20% = 126,000
350,000 x 20% = 70,000
280,000 x 20% = 56,000
Total needs
546,000
700,000
406,000
Less: Beg Merchandise Inventory
420,000 x 20% = 84,000
630,000 x 20% = 126,000
350,000 x 20% = 70,000
Required inventory Purchases
$462,000
$574,000
$336,000
Cost of goods in July is $280,000, so June 20% is calculated for the next month sales. Required inventory, purchases are $462,000 for April, $574,000 for May, and June $336,000.
b)
Schedule of expected cash disbursements for merchandise purchases for April, May, and June and Quarter total
April
May
June
Quarter Total
Accounts Payable
126,000
126,000
April purchase 462,000
462,000 x 50% = 231,000
462,000 x 50% = 231,000
462,000
May Purchase 574,000
574,000 x 50% = 287,000
574,000 x 50% = 287,000
574,000
June Purchase 336,000
336,000 x 50% 168,000
168,000
Total Cash Disbursements
$375,000
$518,000
$455,000
$1,330,000
4
cash budget for April, May, and June as well as for quarter totals.
April
May
June
Quarter Total
Beg. Cash Balance
52,000
40,000
40,000
52,000
Add: Collections from Customers
368,000
636,000
740,000
1,744,000
Total Cash Available
420,000
676,000
780,000
1,796,000
Less: Cash disbursements
Purchase for inventory
357,000
518,000
455,000
$1,330,000
Selling expenses
79,000
120,000
62,000
261,000
Administrative expenses
25,000
32,000
21,000
78,000
Land Purchases
16,000
16,000
Dividends paid
49,000
49,000
Total Cash Disbursements
510,000
686,000
538,000
1,734,000
Excess (deficiency) of cash available over disbursements
-90,000
-10,000
242,000
62,000
Borrowings
130,000
50,000
180,000
Repayments
-180,000
-180,000
interest ($130,000 x 1% x 3 + $50,000 x 1% x 2)
-4,900
-4,900
Total financing
130,000
50,000
-184,900
-4,900
Ending Cash balance
$40,000
$40,000
$57,100
$57,100
April
May
June
Quarter Totals
Cash Sales
120,000
180,000
100,000
400,000
February 200,000
200,000 x 80% x 20% = 32,0000
32,000
March 300,000
300,000 x 80% x 70% = 168,000
300,000 x 80% x 20% =48,000
216,000
April 600,000
600,000 x 80% x 10% = 48,000
600,000 x 80% x 70% = 336,000
600,000 x 80% x 20% = 96,000
480,000
May 900,000
900,000 x 80% x 10% = 72,000
900,000 x 80% x 20% = 96,000
576,000
June 500,000
500,000 x 80% x 10% = 40,000
40,000
Total Cash Collections
$368,000
$636,000
$740,000
$1,744,000