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Problem 7-22A Cash Budget with Supporting Schedules [LO7-2,LO7-4, LO7-8] Garden Sales, Inc., sells garden supplies. Managementis planning its cash needs for the second quarter. The companyusually has to borrow money during this quarter to support peaksales of lawn care equipment, which occur during May. The followinginformation has been assembled to assist in preparing a cash budgetfor the quarter: a. Budgeted monthly absorption costing incomestatements for April–July are: April May June July Sales $ 660,000$ 780,000 $ 269,000 $ 440,000 Cost of goods sold 462,000 546,000188,300 308,000 Gross margin 198,000 234,000 80,700 132,000 Sellingand administrative expenses: Selling expense 84,000 113,000 31,50044,000 Administrative expense* 47,000 78,200 29,800 42,000 Totalselling and administrative expenses 131,000 191,200 61,300 86,000Net operating income $ 67,000 $ 42,800 $ 19,400 $ 46,000 *Includes$18,500 of depreciation each month. b. Sales are 20% for cash and80% on account. c. Sales on account are collected over athree-month period with 10% collected in the month of sale; 70%collected in the first month following the month of sale; and theremaining 20% collected in the second month following the month ofsale. February’s sales totaled $165,000, and March’s sales totaled$265,000. d. Inventory purchases are paid for within 15 days.Therefore, 50% of a month’s inventory purchases are paid for in themonth of purchase. The remaining 50% is paid in the followingmonth. Accounts payable at March 31 for inventory purchases duringMarch total $120,400. e. Each month’s ending inventory must equal20% of the cost of the merchandise to be sold in the followingmonth. The merchandise inventory at March 31 is $92,400. f.Dividends of $33,000 will be declared and paid in April. g. Landcosting $41,000 will be purchased for cash in May. h. The cashbalance at March 31 is $55,000; the company must maintain a cashbalance of atleast $40,000 at the end of each month. i. The companyhas an agreement with a local bank that allows the company toborrow in increments of $1,000 at the beginning of each month, upto a total loan balance of $200,000. The interest rate on theseloans is 1% per month and for simplicity we will assume thatinterest is not compounded. The company would, as far as it isable, repay the loan plus accumulated interest at the end of thequarter. Required: 1. Prepare a schedule of expected cashcollections for April, May, and June, and for the quarter in total.2. Prepare the following for merchandise inventory: a. Amerchandise purchases budget for April, May, and June. b. Aschedule of expected cash disbursements for merchandise purchasesfor April, May, and June, and for the quarter in total. 3. Preparea cash budget for April, May, and June as well as in total for thequarter. (Cash deficiency, repayments and interest should beindicated by a minus sign.)