Refer to the data for Garden Sales, Inc., in Problem 7-22A. The company's president is interested in
Question:
Refer to the data for Garden Sales, Inc., in Problem 7-22A. The company's president is interested in knowing how reducing inventory levels and collecting accounts receivable sooner will impact the cash budget.
He revises the cash collection and ending inventory assumptions as follows:
1. Sales continue to be 20% for cash and 80% on credit. However, credit sales from April, May, and June are collected over a three-month period with 25% collected in the month of sale, 65% collected in the month following sale, and 10% in the second month following sale. Credit sales from February and March are collected during the second quarter using the collection percentages specified in Problem 7-22A.
2. The company maintains its ending inventory levels for April, May, and June at 15% of the cost of merchandise to be sold in the following month. The merchandise inventory at March 31 remains $84,000 and accounts payable for inventory purchases at March 31 remains $126,000. All other information from Problem 7-22A that is not referred to above remains the same.
Required:
1. Using the president's new assumptions in
(1) Above, prepare a schedule of expected cash collections for April, May, and June and for the quarter in total.
2. Using the president's new assumptions in
(2) Above, 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. Using the president's new assumptions, prepare a cash budget for April, May, and June, and for the quarter in total.
4. Prepare a brief memorandum for the president explaining how his revised assumptions affect the cash budget.
Ending InventoryThe ending inventory is the amount of inventory that a business is required to present on its balance sheet. It can be calculated using the ending inventory formula Ending Inventory Formula =... Accounts Payable
Accounts payable (AP) are bills to be paid as part of the normal course of business.This is a standard accounting term, one of the most common liabilities, which normally appears in the balance sheet listing of liabilities. Businesses receive... Accounts Receivable
Accounts receivables are debts owed to your company, usually from sales on credit. Accounts receivable is business asset, the sum of the money owed to you by customers who haven’t paid.The standard procedure in business-to-business sales is that... Cash Budget
A cash budget is an estimation of the cash flows for a business over a specific period of time. These cash inflows and outflows include revenues collected, expenses paid, and loans receipts and payment. Its primary purpose is to provide the...
Step by Step Answer:
Introduction to Managerial Accounting
ISBN: 978-0078025792
7th edition
Authors: Peter Brewer, Ray Garrison, Eric Noreen