Question

Problem 8-29 Completing a Master Budget [LO8-2, LO8-4, LO8-7, LO8-8, LO8-9, LO8-10] The following data relate to the operations of Shilow Company, a wholesale distributor of consumer goods: Current assets as of March 31: Cash $ 8,000 Accounts receivable $ 22,000 Inventory $ 42,600 Building and equipment, net $ 130,800 Accounts payable $ 25,425 Common stock $ 150,000 Retained earnings $ 27,975 The gross margin is 25% of sales. Actual and budgeted sales data: March (actual) $ 55,000 April $ 71,000 May $ 76,000 June $ 101,000 July $ 52,000 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, $2,800 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 $2,000 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 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			42600	45600	60600	148800
credit sales			22,000	28400	30400	80,800
total collections			64600	74000	91000	229600
	Accounts receivable = 101000*40%=				40400
2)			Merchandise purchase budget
			April	May	June	Quarter
Budgeted cost of goods sold			53250	57000	75750	186000
Add Desired ending inventory			45600	60600	31,200	31,200
total needs			98850	117600	106950	217200
less beginning inventory			42,600	45,600	60,600	42,600
Required purchases			56,250	72,000	46,350	174,600
3)		Schedule of Cash disbursements-Merchandise purhcase
			April	May	June	Quarter
March purchases			25,425			25,425
April purchases			28125	28,125		56250
May purchases				36000	36,000	72000
June purchases					23175	23175
total disbursements			53,550	64125	59175	176,850
4)			Cash budget
			April	May	June	Quarter
Beginning cash balance			8,000	4,470	4,865	8,000
Add Cash collectiosn			64600	74000	91000	229600
total cas h available			72,600	78,470	95,865	237,600
less cash disbursements
for inventory			53,550	64125	59175	176,850
for expenses			15580	16480	20980	53040
for equipment			2,000	0	0	2,000
total cash disbursements			71,130	80605	80155	231,890
Excess(Deficiency)of cash			1,470	-2,135	15,710	5,710
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			4,470	4,865	5,480	5,480
	interest = 3000*1%*3=			90
		7000*1%*2=		140
				230
5)			income statement
	Sales					248000
	cost of goods sold
	Beginning inventor				42,600
	Add purchases				174,600
	goods available for sale				217,200
	ending inventory				31,200	186,000
	Gross margin					62,000
	Selling and administrative expense
	commissions				29760
	rent		(2800*3)		8400
	Depreciation		(981*3)		2943
	other expenses				14880	55983
	net operating					6,017
	interest expense					-230
	net income					5,787
		Balance sheet
		Assets
		current assets
		Cash					5,480
		Accounts receivable					40,400
		inventory					31,200
		total current assets					77,080
		Building And equipment ,net (123600+2400-2781)					129857
		total Assets					206,937
		liabilities And stockholder 's Equity
		Accounts payable					23,175
		total current assets					23,175
		Stockholder's Equity
		Capital stock				150,000
		Retained earnings(23,675+5589)				33,762	183,762
		total liabilites & stockholders Equity					206,937