Question

Problem 8-29 Completing a Master Budget [LO8-2, LO8-4, LO8-7, LO8-8, LO8-9, LO8-10]

The following data relate to the operations of Shilow Company, a wholesale distributor of consumer goods:

Current assets as of March 31:
Cash	$	7,200
Accounts receivable	$	18,800
Inventory	$	37,800
Building and equipment, net	$	123,600
Accounts payable	$	22,425
Common stock	$	150,000
Retained earnings	$	14,975

1. The gross margin is 25% of sales.

2. Actual and budgeted sales data:

March (actual)	$	47,000
April	$	63,000
May	$	68,000
June	$	93,000
July	$	44,000

3. Sales are 60% for cash and 40% on credit. Credit sales are collected in the month following sale. The accounts receivable at March 31 are a result of March credit sales.

4. Each month’s ending inventory should equal 80% of the following month’s budgeted cost of goods sold.

5. One-half of a month’s inventory purchases is paid for in the month of purchase; the other half is paid for in the following month. The accounts payable at March 31 are the result of March purchases of inventory.

6. Monthly expenses are as follows: commissions, 12% of sales; rent, $2,000 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $927 per month (includes depreciation on new assets).

7. Equipment costing $1,200 will be purchased for cash in April.

8. Management would like to maintain a minimum cash balance of at least $4,000 at the end of each month. 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 $20,000. 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:

Using the preceding data:

2. Complete the merchandise purchases budget and the schedule of expected cash disbursements for merchandise purchases.

3. Complete the cash budget.

4. Prepare an absorption costing income statement for the quarter ended June 30.

5. Prepare a balance sheet as of June 30.

Complete the merchandise purchases budget and the schedule of expected cash disbursements for merchandise purchases.

Merchandise Purchases Budget April May June Quarter Budgeted cost of goods sold $47,250 $51,000 Add desired ending merchandise inventory 40,800 Total needs 88,050 51,000 0 0 Less beginning merchandise inventory 37,800 Required purchases $50,250 $51,000 $0 $0 Budgeted cost of goods sold for April = $63,000 sales × 75% = $47,250. Add desired ending inventory for April = $51,000 × 80% = $40,800. Schedule of Expected Cash Disbursements—Merchandise Purchases April May June Quarter March purchases $22,425 $22,425 April purchases 25,125 25,125 50,250 May purchases June purchases Total disbursements $47,550 $25,125 $0 $72,675

Complete the cash budget. (Cash deficiency, repayments and interest should be indicated by a minus sign.)

Prepare an absorption costing income statement for the quarter ended June 30

Shilow Company Cash Budget April May June Quarter Beginning cash balance $7,200 Add collections from customers 56,600 Total cash available 63,800 0 0 0 Less cash disbursements: For inventory 47,550 For expenses 13,340 For equipment 1,200 Total cash disbursements 62,090 0 0 0 Excess (deficiency) of cash available over disbursements 1,710 0 0 0 Financing: Borrowings Repayments Interest Total financing 0 0 0 0 Ending cash balance $1,710 $0 $0 $0

	Shilow Company Income Statement For the Quarter Ended June 30 Cost of goods sold: 0 0 0 Selling and administrative expenses: 0 0 0

Prepare a balance sheet as of June 30.

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Answer 1