Question

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

Current assets as of March 31:
Cash	$	7,800
Accounts receivable	$	21,200
Inventory	$	41,400
Building and equipment, net	$	130,800
Accounts payable	$	24,675
Common stock	$	150,000
Retained earnings	$	26,525

The gross margin is 25% of sales.

Actual and budgeted sales data:

March (actual)	$	53,000
April	$	69,000
May	$	74,000
June	$	99,000
July	$	50,000

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, $2,600 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $981 per month (includes depreciation on new assets).

Equipment costing $1,800 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.

1. Complete the following schedule:

2. Complete the following:

3. Complete the following cash budget:

Required 1
	Schedule of Expected Cash Collections April May June Quarter Cash sales $41,400 Credit sales 21,200 Total collections $62,600

Required 2

Merchandise Purchases Budget April May June Quarter Budgeted cost of goods sold $51,750 $55,500 Add desired ending merchandise inventory 44,400 Total needs 96,150 Less beginning merchandise inventory 41,400 Required purchases $54,750 Budgeted cost of goods sold for April = $69,000 sales × 75% = $51,750. Add desired ending inventory for April = $55,500 × 80% = $44,400. Schedule of Expected Cash Disbursements—Merchandise Purchases April May June Quarter March purchases $24,675 $24,675 April purchases 27,375 27,375 54,750 May purchases June purchases Total disbursements

Required 3

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

Answer 1

1)			Shilow company
			Schedule of Expected cash collections
			April	May	June	Quarter
Cash sales			41400	44400	59400	145200
credit sales			21,200	27600	29600	78,400
total collections			62600	72000	89000	223600
	Accounts receivable = 99000*40%=				39600
2)			Merchandise purchase budget
			April	May	June	Quarter
Budgeted cost of goods sold			51750	55500	74250	181500		37500
Add Desired ending inventory			44400	59400	30,000	30,000
total needs			96150	114900	104250	211500
less beginning inventory			41,400	44,400	59,400	41,400
Required purchases			54,750	70,500	44,850	170,100
		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			24,675			24,675
April purchases			27375	27,375		54750
May purchases				35250	35,250	70500
June purchases					22425	22425
total disbursements			52,050	62625	57675	172,350
	Accounts payable june 30 = 22425
4)			Cash budget
			April	May	June	Quarter
Beginning cash balance			7,800	4,530	4,985	7,800
Add Cash collectiosn			62600	72000	89000	223600
total cas h available			70,400	76,530	93,985	231,400
less cash disbursements
for inventory			52,050	62625	57675	172,350
for expenses			15020	15920	20420	51360
for equipment			1,800	0	0	1,800
total cash disbursements			68,870	78545	78095	225,510
Excess(Deficiency)of cash			1,530	-2,015	15,890	5,890
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			4,530	4,985	5,660	5,660
	interest = 3000*1%*3=			90
		7000*1%*2=		140
				230
5)			income statement
	Sales					242000
	cost of goods sold
	Beginning inventor				41,400
	Add purchases				170,100
	goods available for sale				211,500
	ending inventory				30,000	181,500
	Gross margin					60,500
	Selling and administrative expense
	commissions				29040
	rent		(2600*3)		7800
	Depreciation		(981*3)		2943
	other expenses				14520	54303
	net operating					6,197
	interest expense					-230
	net income					5,967
		Balance sheet
		Assets
		current assets
		Cash					5,660
		Accounts receivable					39,600
		inventory					30,000
		total current assets					75,260
		Building And equipment ,net (130800+1800-2943)					129657
		total Assets					204,917
		liabilities And stockholder 's Equity
		Accounts payable					22,425
		total current assets					22,425
		Stockholder's Equity
		Capital stock				150,000
		Retained earnings(26525+5967)				32,492	182,492
		total liabilites & stockholders Equity					204,917