In: Accounting
The following data relate to the operations of Shilow Company, a
wholesale distributor of consumer goods:...
The following data relate to the operations of Shilow Company, a
wholesale distributor of consumer goods:
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Current assets as of March 31:
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Cash
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$
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8,300
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Accounts receivable
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$
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23,200
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Inventory
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$
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44,400
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Building and equipment, net
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$
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126,000
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Accounts payable
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$
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26,550
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Common stock
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$
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150,000
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Retained earnings
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$
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25,350
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- The gross margin is 25% of sales.
- Actual and budgeted sales data:
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March (actual)
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$
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58,000
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April
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$
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74,000
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May
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$
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79,000
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June
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$
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104,000
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July
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$
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55,000
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- 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.
- Each month’s ending inventory should equal 80% of the following
month’s budgeted cost of goods sold.
- 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.
- Monthly expenses are as follows: commissions, 12% of sales;
rent, $3,100 per month; other expenses (excluding depreciation), 6%
of sales. Assume that these expenses are paid monthly. Depreciation
is $945 per month (includes depreciation on new assets).
- Equipment costing $2,300 will be purchased for cash in
April.
- 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.
Complete the schedule of expected cash collections.
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Schedule of Expected Cash Collections
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April
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May
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June
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Quarter
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Cash sales
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$44,400
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Credit sales
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23,200
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Total collections
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$67,600
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