Question

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

Current assets as of March 31:

Cash

$

7300

Accounts receivable

$

19200

Inventory

$

38400

Building and equipment, net

$

124800

Accounts payable

$

22800

Capital stock

$

150,000

Retained earnings

$

16900

The gross margin is 25% of sales.

Actual and budgeted sales data:

  

March (actual)

$

48000

April

$

64000

May

$

69000

June

$

94000

July

$

45000

  

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

E. 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.

F. 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).

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

H. 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.

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

Schedule of Expected Cash Collections from Sales:

	April	May	June	Quarter
Cash Sales	38,400	41,400	56,400	136,200
Cash receipts for sales of
March	19,200			19,200
April		25,600		25,600
May			27,600	27,600
Totals	57,600	67,000	84,000	208,600

Materials Purchases Budget:

	April	May	June	July
Cost of Goods Sold	48,000	51,750	70,500	33,750
Desired Ending Inventory	41,400	56,400	27,000
Total Inventory Needed	89,400	108,150	97,500
Less: Beginning Inventory	38,400	41,400	56,400
Budgeted Material Purchases	51,000	66,750	41,100

Cash Budget:

Shilow Company
Cash Budget
For the quarter ended June 30
	April	May	June	Quarter
Beginning Cash Balance	7,300	4,680	4,285	7,300
Add: Cash Receipts	57,600	67,000	84,000	208,600
Total Cash Available	64,900	71,680	88,285
Less: Cash Disbursements for
Direct Materials Purchases	48,300	58,875	53,925	161,100
Sales Commissions	7,680	8,280	11,280	27,240
Rent	2,100	2,100	2,100	6,300
Other Cash Expenses	3,840	4,140	5,640	13,620
Purchase of Equipment	1,300	0	0	1,300
Total Cash Disbursements	63,220	73,395	72,945	209,560
Cash Surplus ( Deficiency)	1,680	(1,715)	15,340
Financing
Borrowings	3,000	6,000		9,000
Repayments			(9,000)	(9,000)
Interest			(210)	(210)
Total Financing	3,000	9,000	(9,210)
Ending Cash Balance	4,680	4,285	6,130

Income Statement:

Sales		$ 227,000
Less: Cost of Goods Sold		170,250
Gross Margin		56,750
Less: Selling and Administrative Expenses
Sales Commission Expense	$ 27,240
Rent Expense	6,300
Other Expenses	13,620
Depreciation Expense	2,808
Total Selling and Administrative Expenses		49,968
Income from Operations		6,782
Interest Expense		210
Net Income		6,572

Balance Sheet:

Shilow Company
Balance Sheet
June 30
Assets	$
Cash	6,130
Accounts Receivable	37,600
Inventory	27,000
Buildings and Equipment, net	123,292
Total Assets	$ 194,022
Liabilities and Stockholders' Equity	$
Accounts Payable	20,550
Capital Stock	150,000
Retained Earnings	23,472
Total Liabilities and Stockholders' Equity	$ 194,022