Question

In: Accounting

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

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 of expected cash collections

2. Complete the following: Merchandise Purchases Budget

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.

Solutions

Expert Solution

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%= 39,200
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 = 22,050
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 3,000 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 liabilities 22,050
Stockholder's Equity
Capital stock 150,000
Retained earnings 30,704 180,704
total liabilites & stockholders Equity 202,754

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