Question

Following is selected information relating to the operations of Shilow Company, a wholesale distributor:

Current assets as of March 31:
Cash	$	29,000
Accounts receivable		42,000
Inventory		75,600
Plant and equipment, net		196,000
Accounts payable		59,600
Capital shares		260,000
Retained earnings		23,000

a.	Gross margin is 25% of sales.
b.	Actual and budgeted sales data are as follows:

March (actual)	$	105,000
April		126,000
May		138,000
June		156,000
July		103,000

c.	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.
d.	At the end of each month, inventory is to be on hand equal to 80% of the following month’s sales needs, stated at cost.
e.	One-half of a month’s inventory purchases are paid for in the month of purchase; the other half are paid for in the following month. The accounts payable at March 31 are a result of March purchases of inventory.
f.	Monthly expenses are as follows: salaries and wages, 12% of sales; rent, $6,500 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $2,000 per month (includes depreciation on new assets).
g.	Equipment costing $2,600 will be purchased for cash in April.
h.	The company must maintain a minimum cash balance of $8,000. An open line of credit is available at a local bank. All borrowing is done at the beginning of a month, and all repayments are made at the end of a month; borrowing must be in multiples of $1,000. The annual interest rate is 12%. Interest is paid only at the time of repayment of principal; figure interest on whole months (1/12, 2/12, and so forth).

Required:

Using the preceding data: 3. Prepare a schedule of expected cash disbursements for operating expenses.       4. Prepare a cash budget by month and for the quarter in total. (Any "Repayments" and "Interest" should be indicated by a minus sign.)       5. Prepare an income statement for the quarter ended June 30.       6. Prepare a balance sheet as of June 30.

Answer 1

Solution 1:
Schedule of expected cash collections
Particulars	April	May	June	Quarter
Budgeted Sales	$126,000.00	$138,000.00	$156,000.00	$420,000.00
Cash Sale	$75,600.00	$82,800.00	$93,600.00	$252,000.00
Collection for credit sales	$42,000.00	$50,400.00	$55,200.00	$147,600.00
Total Collections	$117,600.00	$133,200.00	$148,800.00	$399,600.00
Solution 2:
Merchandise Purchase Budget
Particulars	April	May	June	Quarter
Budgeted Cost of Goods Sold (75% of Sales)	$94,500.00	$103,500.00	$117,000.00	$315,000.00
Add: Desired ending merchandise inventory (80% of next month COGS)	$82,800.00	$93,600.00	$61,800.00	$61,800.00
Total Needs	$177,300.00	$197,100.00	$178,800.00	$376,800.00
Less: Beginning inventory	$75,600.00	$82,800.00	$93,600.00	$75,600.00
Required purchases	$101,700.00	$114,300.00	$85,200.00	$301,200.00
Schedule of expected cash disbursement - Merchandise Purchases
Particulars	April	May	June	Quarter
March Purchases	$59,600.00			$59,600.00
April Purchases	$50,850.00	$50,850.00		$101,700.00
May Purchases		$57,150.00	$57,150.00	$114,300.00
June Purchases			$42,600.00	$42,600.00
Total Disbursement	$110,450.00	$108,000.00	$99,750.00	$318,200.00

Solution 3:

Schedule of expected cash disbursement of operating expenses
Particulars	April	May	June	Quarter
Salaries and wages	$15,120.00	$16,560.00	$18,720.00	$50,400.00
Rent	$6,500.00	$6,500.00	$6,500.00	$19,500.00
Other expenses	$7,560.00	$8,280.00	$9,360.00	$25,200.00
Total Disbursement	$29,180.00	$31,340.00	$34,580.00	$95,100.00

Solution 4:

Cash Budget - Shilow company
Particulars	April	May	June	Quarter
Opening Cash balance	$29,000.00	$8,370.00	$8,230.00	$29,000.00
Add: Collection from customers	$117,600.00	$133,200.00	$148,800.00	$399,600.00
Total Cash Available	$146,600.00	$141,570.00	$157,030.00	$428,600.00
Less - Cash Disbursement:
For Inventory	$110,450.00	$108,000.00	$99,750.00	$318,200.00
For Expenses	$29,180.00	$31,340.00	$34,580.00	$95,100.00
For Equipment	$2,600.00	$0.00	$0.00	$2,600.00
Total Cash disbursement	$142,230.00	$139,340.00	$134,330.00	$415,900.00
Excess (deficiency) of cash available over disbursements	$4,370.00	$2,230.00	$22,700.00	$12,700.00
Financing:
Borrowings	$4,000.00	$6,000.00	$0.00	$10,000.00
Repayments	$0.00	$0.00	-$10,000.00	-$10,000.00
Interest	$0.00	$0.00	-$240.00	-$240.00
Total Financing	$4,000.00	$6,000.00	-$10,240.00	-$240.00
Ending cash balance	$8,370.00	$8,230.00	$12,460.00	$12,460.00

Solution 5:

Absorption costing income statement - Shilow Company
for quarter ended June 30
Particulars		Amount
Sales		$420,000.00
Cost of goods sold:
Beginning inventory	$75,600.00
Purchases	$301,200.00
Cost of goods available for sale	$376,800.00
Ending inventory	$61,800.00	$315,000.00
Gross Margin		$105,000.00
Selling and Administrative expenses:
Rent	$19,500.00
Other expenses	$25,200.00
Depreciation	$6,000.00
Sales commission	$50,400.00	$101,100.00
Net operating income		$3,900.00
Interest expense		$240.00
Net Income		$3,660.00

Solution 6:

Balance Sheet- Shilow Company
30-Jun
Particulars	Amount
Assets:
Cash	$12,460.00
Accounts receivables ($156,000*40%)	$62,400.00
Inventory	$61,800.00
Building and equipment, net ($196,000 +$2,600 - $6,000)	$192,600.00
Total Assets	$329,260.00
Liabilities and stockholder's Equity:
Accounts payable (85,200*50%)	$42,600.00
Common Stock	$260,000.00
Retained Earnings ($23,000 + $3,660)	$26,660.00
Total liabilities and stockholders equity	$329,260.00