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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:

a.	Budgeted monthly absorption costing income statements for AprilJuly are:

	April		May		June		July
Sales	$	500,000	$	700,000	$	400,000	$	300,000
Cost of goods sold		350,000		490,000		280,000		210,000
Gross margin		150,000		210,000		120,000		90,000
Selling and administrative expenses:
Selling expense		70,000		90,000		51,000		30,000
Administrative expense*		40,000		52,800		32,000		28,000
Total selling and administrative expenses		110,000		142,800		83,000		58,000
Net operating income	$	40,000	$	67,200	$	37,000	$	32,000

*Includes $12,000 of depreciation each month.

b.	Sales are 20% for cash and 80% on account.
c.	Sales on account are collected over a three-month period with 10% collected in the month of sale; 80% collected in the first month following the month of sale; and the remaining 10% collected in the second month following the month of sale. Februarys sales totaled $140,000, and Marchs sales totaled $200,000.
d.	Inventory purchases are paid for within 15 days. Therefore, 50% of a months 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 $91,000.
e.	Each months 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 $70,000.
f.	Dividends of $20,000 will be declared and paid in April.
g.	Land costing $28,000 will be purchased for cash in May.
h.	The cash balance at March 31 is $42,000; the company must maintain a cash balance of atleast $40,000 at the end of each month.
i.	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.

Required: 1. Prepare a schedule of expected cash collections for April, May, and June, and for the quarter in total.

	Schedule of Expected Cash Collections April May June Quarter Cash sales $100,000 $140,000 $80,000 $320,000 Sales on account: February 0 March 0 April 0 May 0 June 0 Total cash collections $100,000 $140,000 $80,000 $320,000 ]]

2.	Prepare the following for merchandise inventory:

a.

A merchandise purchases budget for April, May, and June. Merchandise Purchases Budget April May June Budgeted cost of goods sold Total needs 0 0 0 Required inventory purchases $0 $0 $0 b. A schedule of expected cash disbursements for merchandise purchases for April, May, and June, and for the quarter in total. Schedule of Expected Cash Disbursements for Merchandise Purchases April May June Quarter Beginning accounts payable $0 April purchases 0 May purchases 0 June purchases 0 Total cash disbursements $0 $0 $0 $0 3. 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. Cash Budget For the Quarter Ended June 30 April May June Quarter Beginning cash balance Add collections from customers Total cash available 0 0 0 0 Less cash disbursements: Purchases for inventory Selling expenses Administrative expenses Land purchases Dividends paid Total cash disbursements 0 0 0 0 Excess (deficiency) of cash available over disbursements 0 0 0 0 Financing: Borrowings Repayment Interest Total financing 0 0 0 0 Ending cash balance $0 $0 $0 $0

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