Problem 7-5 Preparing a Cash Budget with Supporting Schedules (LO2- CC5, 7, 12) Garden Sales, Inc. sells garden supplies. Management is planning its cash needs for the second quarter. The following information has been assembled to assist in preparing a cash budget for the quarter a. Budgeted monthly income statements for April to July are as follows: April May June July Sales 5640,000 $800,000 $580,000 $480.000 Cost of goods sold 432,000 600,000 392,000 336,000 Gross margin 208,000 280.000 168,000 144,000 Less: Operating expenses Seling expense 95.200 128.000 55,600 56,800 Administrative expense 52.000 62.400 48,800 46.400 Total operating expenses 147 200 100.400 114400 103, 200 Not income $ 60,800 $ 89.600 S 53,600 S 40.800 "Includes $10,000 in depreciation each month, b. Sales are 20% for cash and 80% on account c. Sales on account are collected over a three-month period in the following ratio: 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 totalled $320,000, and March's sales totalled $400,000. d. 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% are paid in the following month. Accounts payable at March 31 for inventory 0. At the end of each month, inventory must be on hand equal to 20% of the cost of the merchandise to be sold in the following month. The merchandise inventory at March 31 is $86,400. 1. Dividends of $86,400 will be dedared and paid in April 9. Equipment costing $20,800 will be purchased for cash in May. h. The cash balance at March 31 is $57,600, the company must maintain a cash balance of at least $45,000 at all times. The company can borrow from its bank, as needed, to bolster the cash account Borrowings and repayments must be in multiples of $500. Interest is due only when principal is repaid and is calculated on the amount of repayment for the duration of the time money was borrowed. All borrowings take place at the beginning of a month and all repayments are made at the end of a month. The annual interest rate is 12%. Compute interest on whole months (1/12, 212, and so forth), Required: 1. Prepare a schedule of expected cash collections from sales for each of the months April May, and June, and for the quarter in total GARDEN SALES, INC. Schedule of Expected Cash Collections April May June Quarter 5 126.000 $ 176,000 $ 112,000 $ 96,000 51,800 Cash sales Sales on account February March April May June Total cash collections $ 179,800 $ 170.000 $ 112,000 $ 96,000 2. Prepare the following for merchandise inventory 1. An inventory purchases budget for each of the months April, May, and June May June GARDEN SALES, INC. Inventory Purchases Budget April Budgeted cost of goods sold Add: Desired ending inventory Total needs Add: Beginning inventory Required inventory purchases b. A schedule of expected cash disbursements for inventory for each of the months April May, and June, and for the quarter in total 2/3 GARDEN SALES, INC. Schedule of Expected Cash Disbursements for Inventory April May June Quarter Accounts payable, March 31 April purchases May purchases June purchases Total cash disbursements 5 5 03 0 S 05 3. Prepare a cash budget for the third quarter, by month as well as in total for the quarter. Show borrowings from the company's bank and repayments to the bank, as needed to maintain the minimum cash balance. (Roundup "Borrowing" and "Repayments" answers to the nearest whole dollar amount. Any "Repayments" and "Interest should be indicated by a minus sign.) GARDEN SALES, INC. Cash Budget For the Quarter Ended June 30 April May June Quarter 0 0 0 0 Cash balance, beginning Add: Collections from sales Total cash available Deduct: Disbursements Purchases for inventory Selling expenses Administrative expenses Equipment purchases Dividends paid 0 0 0 Total disbursements Excess (deficiency) of cash Financing Borrowings Repayments Interest 0 0 0 0 Total financing Cash balance, ending