Question

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

Current assets as of March 31:
Cash	$	9,000
Accounts receivable	$	26,000
Inventory	$	48,600
Building and equipment, net	$	109,200
Accounts payable	$	29,175
Common stock	$	150,000
Retained earnings	$	13,625

1. The gross margin is 25% of sales.

2. Actual and budgeted sales data:

March (actual)	$	65,000
April	$	81,000
May	$	86,000
June	$	111,000
July	$	62,000

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, $3,800 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $819 per month (includes depreciation on new assets).

7. Equipment costing $3,000 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:

1. Complete the schedule of expected cash collections.

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.

Answer 1

1)			Shilow company
			Schedule of Expected cash collections
			April	May	June	Quarter
Cash sales			48600	51600	66600	166800
credit sales			26,000	32400	34400	92,800
total collections			74600	84000	101000	259600
	Accounts receivable = 111000*40%=				44400
2)			Merchandise purchase budget
			April	May	June	Quarter
Budgeted cost of goods sold			60750	64500	83250	208500
Add Desired ending inventory			51600	66600	37,200	37,200
total needs			112350	131100	120450	245700
less beginning inventory			48,600	51,600	66,600	48,600
Required purchases			63,750	79,500	53,850	197,100
3)		Schedule of Cash disbursements-Merchandise purhcase
			April	May	June	Quarter
March purchases			29,175			29,175
April purchases			31875	31,875		63750
May purchases				39750	39,750	79500
June purchases					26925	26925
total disbursements			61,050	71625	66675	199,350
4)			Cash budget
			April	May	June	Quarter
Beginning cash balance			9,000	4,170	4,265	9,000
Add Cash collectiosn			74600	84000	101000	259600
total cas h available			83,600	88,170	105,265	268,600
less cash disbursements
for inventory			61,050	71625	66675	199,350
for expenses			18380	19280	23780	61440
for equipment			3,000	0	0	3,000
total cash disbursements			82,430	90905	90455	263,790
Excess(Deficiency)of cash			1,170	-2,735	14,810	4,810
Financing:
Borrowings			3,000	7,000	0	10,000
Repayments			0		-10,000	-10,000
interest			0		-230	-230
total financing			1,000	7,000	-10230	-230
Ending cash balance			4,170	4,265	4,580	4,580
	interest = 3000*1%*3=			90
		7000*1%*2=		140
				230
5)			income statement
	Sales					278000
	cost of goods sold
	Beginning inventor				48,600
	Add purchases				197,100
	goods available for sale				245,700
	ending inventory				37,200	208,500
	Gross margin					69,500
	Selling and administrative expense
	commissions				33360
	rent		(3800*3)		11400
	Depreciation		(819*3)		2457
	other expenses				16680	63897
	net operating					5,603
	interest expense					230
	net income					5,373
		Balance sheet
		Assets
		current assets
		Cash					4,580
		Accounts receivable					44,400
		inventory					37,200
		total current assets					86,180
		Building And equipment ,net					109,743
		total Assets					195,923
		liabilities And stockholder 's Equity
		Accounts payable					26,925
		total current assets					26,925
		Stockholder's Equity
		Capital stock				150,000
		Retained earnings				18,998	168,998
		total liabilites & stockholders Equity					195,923