<p>Cash Budget with Supporting Schedules (LO2, LO4, L08) CHECK FIGURE (2a) May purchases: $395,500 (3) June 30 cash balance: $42,070 Fowkes & Sons sells bicycles. 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 dirt bikes, 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 April–July are: April May June July Sales $550,000 $580,000 $520,000 $480,000 Cost of goods sold 385,000 406,000 364,000 336,000 Gross margin 165,000 174,000 156,000 144,000 Selling and administrative expenses: Selling expense 72,000 74,000 75,000 73,000 Administrative expense* 53,000 54,000 56,000 55,000 Total selling and administrative expenses 125,000 128,000 131,000 128,000 Net operating income $ 40,000 $ 46,000 $ 25,000 $ 16,000 *Includes $14,000 of depreciation each month. b. Sales are 30% for cash and 70% on account. c. Sales on account are collected over a three-month period with 20% collected in the month of sale, 60% 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 $340,000, and March’s sales totaled $380,000. d. 40% of a month’s inventory purchases are paid for in the month of purchase; the remaining 60% are paid in the following month. Accounts payable at March 31 for inventory purchases during March total $177,450. e. Each month’s ending inventory must equal 25% of the cost of the merchandise to be sold in the following month. The merchandise inventory at March 31 is $96,250. f. Dividends of $39,000 will be declared and paid in April. g. Land costing $60,000 will be purchased for cash in May. h. The cash balance at March 31 is $52,000; the company must maintain a cash balance of at least $30,000 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 of $50,000. The interest rate on these loans is 1% per month and for simplicity we will assume the 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. 2. 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. Prepare a cash budget for the third quarter by month as well as in total for the quarter. </p><p>1. Collections on sales: April May June Quarter Cash sales $165,000 $174,000 $156,000 $ 495,000 Sales on account: February: $340,000 × 70% × 20% 47,600 47,600 March: $380,000 × 70% × 60%, 20% 159,600 53,200 212,800 April: $550,000 × 70% × 20%, 60%, 20% 77,000 231,000 77,000 385,000 May: $580,000 × 70% × 20%, 60% 81,200 243,600 324,800 June: $520,000 × 70% × 20% 72,800 72,800 Total cash collections $449,200 $539,400 $549,400 $1,538,000</p><p>2. a. Inventory purchases budget: April May June July Budgeted cost of goods sold $385,000 $406,000 $364,000 $336,000 Add desired ending inventory* 101,500 91,000 84,000 Total needs 486,500 497,000 448,000 Less beginning inventory 96,250 101,500 91,000 Required inventory purchases $390,250 $395,500 $357,000 *25% of the next month’s budgeted cost of goods sold.</p><p> b. Schedule of expected cash disbursements for inventory: April May June Quarter Accounts payable, March 31 $177,450 $ 177,450 April purchases ($390,250 × 40%, 60%) 156,100 $234,150 390,250 May purchases ($395,500 × 40%, 60%) 158,200 $237,300 395,500 June purchases ($357,000 × 40%) 142,800 142,800 Total cash disbursements $333,550 $392,350 $380,100 $1,106,000</p><p>3. Fowkes & Sons Cash Budget For the Quarter Ended June 30</p><p>April May June Quarter Cash balance, beginning $ 52,000 $ 30,650 $ 30,700 $ 52,000 Add collections from sales 449,200 539,400 549,400 1,538,000 Total cash available 501,200 570,050 580,100 1,590,000 Less disbursements: Purchases for inventory 333,550 392,350 380,100 1,106,000 Selling expenses 72,000 74,000 75,000 221,000 Administrative expenses 39,000 40,000 42,000 121,000 Land purchases 0 60,000 0 60,000 Dividends paid 39,000 0 0 39,000 Total disbursements 483,550 566,350 497,100 1,547,000 Excess (deficiency) of cash 17,650 3,700 83,000 43,000 Financing: Borrowing 13,000 27,000 0 40,000 Repayment 0 0 (40,000) (40,000) Interest 0 0 (930) * (930) Total financing 13,000 27,000 (40,930) (930) Cash balance, ending $ 30,650 $ 30,700 $ 42,070 $ 42,070 * $13,000 × 12% × 3/12 = $390 $27,000 × 12% × 2/12 = 540 $930</p>