Question
why the answer 15540 wrong?
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: Budgeted monthly absorption costing income statements for April - July are: Includes $2,500 of depreciation each month. Sales are 20% for cash and 80% on account. 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 collected in the second month following the month of sale. February's sales totaled $25,500, and March's sales totaled $40,000. Inventory purchases are paid for within 15 days. Therefore, 50% of a month's inventory purchases are paid for the month of purchase. The remaining 50% is paid in the month. Accounts payable at March 31 for inventory purchases during March totals $11,700. Each month's ending inventory must equal 80% of the cost of the merchandise to be sold in the following month. The merchandise inventory at March 31 is $12,000. Dividends of $1,000 will be declared and paid in April. Land costing $4,600 will be purchased for cash in May The cash balance at March 31 is $8,000; the company must maintain a cash balance of at least $8,000 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 $40,000. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. The company would, as far as able, repay the loan plus accumulated interest at the end of the quarter. Prepare a cash budget for April, May, and June as well as in total for the quarter. ( Cash deficiencies and total financing should be preceding by a minus sign when appropriate. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.) Garden Sales, Inc. Cash Budget For the Quarter Ended June 30 Cash balance, beginning Add collections from sales Total cash available Total disbursements Excess (deficiency) of cash Total financing Cash balance, ending
Explanation / Answer
-The total financing is equal to 0 as long as the Excess (deficiency) of cash is positive (because if you are able to pay everything with what you have, you won't need to take a loan). -You need to recalculate the total cash available for either May or June. After you have one of the months, you can get the other by difference (because the quarter is the sum of the other three and you already got the quarter right). -After you have the total cash available, calculate the Excess (deficiency) of Cash. It's equal to Total Cash Available - Total disbursements. -In case you need to take a loan, pay it by the end of the quarter and include it in the disbursements field, adding the 1% interest.
