Question

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

Current assets as of March 31:
Cash	$	8,400
Accounts receivable	$	23,600
Inventory	$	45,000
Building and equipment, net	$	123,600
Accounts payable	$	26,925
Capital stock	$	150,000
Retained earnings	$	23,675

The gross margin is 25% of sales.

Actual and budgeted sales data:

  

March (actual)	$	59,000
April	$	75,000
May	$	80,000
June	$	105,000
July	$	56,000

  

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, $3,200 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).

Equipment costing $2,400 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 data above:

1. Complete the following schedule.

   

2. Complete the following:

  

3. Complete the following cash budget: (Borrow and repay in increments of $1,000. Cash deficiency, repayments and interest should be indicated by a minus sign.)

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			45000	48000	63000	156000
credit sales			23,600	30000	32000	85,600
total collections			68600	78000	95000	241600
	Accounts receivable = 105000*40%=				42000
2)			Merchandise purchase budget
			April	May	June	Quarter
Budgeted cost of goods sold			56250	60000	78750	195000		42000
Add Desired ending inventory			48000	63000	33,600	33,600
total needs			104250	123000	112350	228600
less beginning inventory			45,000	48,000	63,000	45,000
Required purchases			59,250	75,000	49,350	183,600
		cost of goods sold = 75% of sales
		ending inventory = 80% of following months budgeted cost of goods sold
3)		Schedule of Cash disbursements-Merchandise purhcase
			April	May	June	Quarter
March purchases			26,925			26,925
April purchases			29625	29,625		59250
May purchases				37500	37,500	75000
June purchases					24675	24675
total disbursements			56,550	67125	62175	185,850
	Accounts payable june 30 = 24675
4)			Cash budget
			April	May	June	Quarter
Beginning cash balance			8,400	4,350	4,625	8,400
Add Cash collectiosn			68600	78000	95000	241600
total cas h available			77,000	82,350	99,625	250,000
less cash disbursements
for inventory			56,550	67125	62175	185,850
for expenses			16700	17600	22100	56400
for equipment			2,400	0	0	2,400
total cash disbursements			75,650	84725	84275	244,650
Excess(Deficiency)of cash			1,350	-2,375	15,350	5,350
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			4,350	4,625	5,120	5,120
	interest = 3000*1%*3=			90
		7000*1%*2=		140
				230
5)			income statement
	Sales					260000
	cost of goods sold
	Beginning inventor				45,000
	Add purchases				183,600
	goods available for sale				228,600
	ending inventory				33,600	195,000
	Gross margin					65,000
	Selling and administrative expense
	commissions				31200
	rent		(3200*3)		9600
	Depreciation		(927*3)		2781
	other expenses				15600	59181
	net operating					5,819
	interest expense					-230
	net income					5,589
		Balance sheet
		Assets
		current assets
		Cash					5,120
		Accounts receivable					42,000
		inventory					33,600
		total current assets					80,720
		Building And equipment ,net (123600+2400-2781)					123219
		total Assets					203,939
		liabilities And stockholder 's Equity
		Accounts payable					24,675
		total current assets					24,675
		Stockholder's Equity
		Capital stock				150,000
		Retained earnings(23,675+5589)				29,264	179,264
		total liabilites & stockholders Equity					203,939