Garden Sales, Inc., sells garden supplies. Management is planning its cash needs
ID: 2543230 • Letter: G
Question
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 $215,000, and March’s sales totaled $315,000.
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 $142,800.
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 $109,200.
The cash balance at March 31 is $65,000; 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
Answer 1 Schedule of expected cash collections for April, May, and June, and for the quarter in total April May June Quarter Cash Sales $156,000 $176,000 $63,000 $395,000 Credit sale Collection - February Sales $34,400 $34,400 - March Sales $176,400 $50,400 $226,800 - April Sales $62,400 $436,800 $124,800 $624,000 - May Sales $70,400 $492,800 $563,200 - June Sales $25,200 $25,200 Expected Cash Collection $429,200 $733,600 $705,800 $1,868,600 Answer 2a A merchandise purchases budget for April, May, and June. April May June Quarter Cost of goods sold $546,000 $616,000 $220,500 $1,382,500 Add : Ending Inventory $123,200 $44,100 $77,000 $77,000 Less : Beginning Inventory $109,200 $123,200 $44,100 $109,200 Merchandise Purchases $560,000 $536,900 $253,400 $1,350,300 Answer 2b A schedule of expected cash disbursements for merchandise purchases April May June Quarter Accounts Payable at March 31 $142,800 $142,800 April Purchases $280,000 $280,000 $560,000 May Purchases $268,450 $268,450 $536,900 June Purchases $126,700 $126,700 Expected Cash Disbursements $422,800 $548,450 $395,150 $1,366,400 Answer 3 Cash Budget April May June Quarter Cash collection from Sales $429,200 $733,600 $705,800 $1,868,600 Total Cash Receipts $429,200 $733,600 $705,800 $1,868,600 Cash disbursements - Merchandise Purchases $422,800 $548,450 $395,150 $1,366,400 - Dividends $43,000 $43,000 - Purchase of Land $51,000 $51,000 - Selling Expenses $94,000 $123,000 $36,500 $253,500 - Administrative Expenses $28,500 $72,300 $12,300 $113,100 Total Cash disbursements $588,300 $794,750 $443,950 $1,827,000 Cash Surplus / (Deficit) -$159,100 -$61,150 $261,850 $41,600 Add : Beginning Cash balance $65,000 $40,900 $40,750 $65,000 Total Cash Available -$94,100 -$20,250 $302,600 $106,600 Add : Borrowing $135,000 $61,000 $0 $196,000 Less : Loan repayment $0 $0 -$196,000 -$196,000 Less : Interest Payment $0 $0 -$5,270 -$5,270 Ending Cash balance $40,900 $40,750 $101,330 $101,330
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