Question

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

Current assets as of March 31:
Cash	$	7,700
Accounts receivable	$	20,800
Inventory	$	40,800
Building and equipment, net	$	129,600
Accounts payable	$	24,300
Common stock	$	150,000
Retained earnings	$	24,600

The gross margin is 25% of sales.

Actual and budgeted sales data:

March (actual)	$	52,000
April	$	68,000
May	$	73,000
June	$	98,000
July	$	49,000

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, $2,500 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $972 per month (includes depreciation on new assets).

Equipment costing $1,700 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 following schedule:

2. Complete the following:

3. Complete the following 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			40800	43800	58800	143400
credit sales			20,800	27200	29200	77,200
total collections			61600	71000	88000	220600
	Accounts receivable = 98000*40%=				39200
2)			Merchandise purchase budget
			April	May	June	Quarter
Budgeted cost of goods sold			51000	54750	73500	179250		36750
Add Desired ending inventory			43800	58800	29,400	29,400
total needs			94800	113550	102900	208650
less beginning inventory			40,800	43,800	58,800	40,800
Required purchases			54,000	69,750	44,100	167,850
		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			24,300			24,300
April purchases			27000	27,000		54000
May purchases				34875	34,875	69750
June purchases					22050	22050
total disbursements			51,300	61875	56925	170,100
	Accounts payable june 30 = 22050
4)			Cash budget
			April	May	June	Quarter
Beginning cash balance			7,700	4,560	4,045	7,700
Add Cash collectiosn			61600	71000	88000	220600
total cas h available			69,300	75,560	92,045	228,300
less cash disbursements
for inventory			51,300	61875	56925	170,100
for expenses			14740	15640	20140	50520
for equipment			1,700	0	0	1,700
total cash disbursements			67,740	77515	77065	222,320
Excess(Deficiency)of cash			1,560	-1,955	14,980	5,980
Financing:
Borrowings			3,000	6,000	0	9,000
Repayments			0		-9,000	-9,000
interest			0		-210	-210
total financing			1,000	6,000	-9210	-210
Ending cash balance			4,560	4,045	5,770	5,770
	interest = 3000*1%*3=			90
		6000*1%*2=		120
				210
5)			income statement
	Sales					239000
	cost of goods sold
	Beginning inventor				40,800
	Add purchases				167,850
	goods available for sale				208,650
	ending inventory				29,400	179,250
	Gross margin					59,750
	Selling and administrative expense
	commissions				28680
	rent		(2500*3)		7500
	Depreciation		(972*3)		2916
	other expenses				14340	53436
	net operating					6,314
	interest expense					-210
	net income					6,104
		Balance sheet
		Assets
		current assets
		Cash					5,770
		Accounts receivable					39,200
		inventory					29,400
		total current assets					74,370
		Building And equipment ,net (129600+1700-2916)					128384
		total Assets					202,754
		liabilities And stockholder 's Equity
		Accounts payable					22,050
		total current assets					22,050
		Stockholder's Equity
		Capital stock				150,000
		Retained earnings(24,600+6104)				30,704	180,704
		total liabilites & stockholders Equity					202,754