Question

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

Current assets as of March 31:
Cash	$	7,300
Accounts receivable	$	19,200
Inventory	$	38,400
Building and equipment, net	$	124,800
Accounts payable	$	22,800
Common stock	$	150,000
Retained earnings	$	16,900

1. The gross margin is 25% of sales.

2. Actual and budgeted sales data:

March (actual)	$	48,000
April	$	64,000
May	$	69,000
June	$	94,000
July	$	45,000

3. 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.

4. Each month’s ending inventory should equal 80% of the following month’s budgeted cost of goods sold.

5. 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.

6. Monthly expenses are as follows: commissions, 12% of sales; rent, $2,100 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $936 per month (includes depreciation on new assets).

7. Equipment costing $1,300 will be purchased for cash in April.

8. 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.

Answer 1

1)			Shilow company
			Schedule of Expected cash collections
			April	May	June	Quarter
Cash sales			38400	41400	56400	136200
credit sales			19,200	25600	27600	72,400
total collections			57600	67000	84000	208600
	Accounts receivable = 94000*40%=				37600
2)			Merchandise purchase budget
			April	May	June	Quarter
Budgeted cost of goods sold			48000	51750	70500	170250
Add Desired ending inventory			41400	56400	27,000	27,000
total needs			89400	108150	97500	197250
less beginning inventory			38,400	41,400	56,400	38,400
Required purchases			51,000	66,750	41,100	158,850
3)		Schedule of Cash disbursements-Merchandise purhcase
			April	May	June	Quarter
March purchases			22,800			22,800
April purchases			25500	25,500		51000
May purchases				33375	33,375	66750
June purchases					20550	20550
total disbursements			48,300	58875	53925	161,100
4)			Cash budget
			April	May	June	Quarter
Beginning cash balance			7,300	4,680	4,285	7,300
Add Cash collectiosn			57600	67000	84000	208600
total cas h available			64,900	71,680	88,285	215,900
less cash disbursements
for inventory			48,300	58875	53925	161,100
for expenses			13620	14520	19020	47160
for equipment			1,300	0	0	1,300
total cash disbursements			63,220	73395	72945	209,560
Excess(Deficiency)of cash			1,680	-1,715	15,340	6,340
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			4,680	4,285	6,130	6,130
	interest = 3000*1%*3=			90
		6000*1%*2=		120
				210
5)			income statement
	Sales					227000
	cost of goods sold
	Beginning inventor				38,400
	Add purchases				158,850
	goods available for sale				197,250
	ending inventory				27,000	170,250
	Gross margin					56,750
	Selling and administrative expense
	commissions				27240
	rent		(2100*3)		6300
	Depreciation		(936*3)		2808
	other expenses				13620	49968
	net operating					6,782
	interest expense					210
	net income					6,572
		Balance sheet
		Assets
		current assets
		Cash					6,130
		Accounts receivable					37,600
		inventory					27,000
		total current assets					70,730
		Building And equipment ,net					123,292
		total Assets					194,022
		liabilities And stockholder 's Equity
		Accounts payable					20,550
		total current assets					20,550
		Stockholder's Equity
		Capital stock				150,000
		Retained earnings				23,472	173,472
		total liabilites & stockholders Equity					194,022