Question

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

Current assets as of March 31:
Cash	$	7,500
Accounts receivable	$	20,000
Inventory	$	39,600
Building and equipment, net	$	127,200
Accounts payable	$	23,550
Common stock	$	150,000
Retained earnings	$	20,750

The gross margin is 25% of sales.

Actual and budgeted sales data:

March (actual)	$	50,000
April	$	66,000
May	$	71,000
June	$	96,000
July	$	47,000

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, $2,300 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $954 per month (includes depreciation on new assets).

Equipment costing $1,500 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:

2. 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

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A. Sales Budget
		April	May	June	Total	July
Budgeted Sale		$             66,000	$             71,000	$             96,000	$                 233,000	$                    47,000
B. Purchase of Merchandise Budget:
		Apr	May	Jun	Total	Jul
Cost of Goods Sold	75%	$             49,500	$             53,250	$             72,000	$                 174,750	$                    47,000
Add: Desired Ending Inventory	80% of next month COGS	$             42,600	$             57,600	$             37,600	$                    37,600
Need		$             92,100	$           110,850	$           109,600	$                 212,350
Less: Beginning Inventory		$            -39,600	$            -42,600	$            -57,600	$                  -39,600
Total Cost of Purchases		$             52,500	$             68,250	$             52,000	$                 172,750
1. Expected Cash Collections
Next Month	40%
	Total Sale	Apr	May	Jun	Total	Jun 30 Receivable
Accounts Receivable - April 1	$                                                                20,000	$             20,000			$                    20,000	$                             -
Credit Sales From					$                             -	$                             -
April	$                                                                26,400	$                       -	$             26,400		$                    26,400	$                             -
May	$                                                                28,400		$                       -	$             28,400	$                    28,400	$                             -
June	$                                                                38,400			$                       -	$                             -	$                    38,400
Total Collection of Receivables	$                                                              113,200	$             20,000	$             26,400	$             28,400	$                    74,800	$                    38,400
Total Cash Receipt from customers:		Apr	May	Jun	Total
Current Month Cash Sales	60%	$             39,600	$             42,600	$             57,600	$                 139,800
Total Collection of Receivables		$             20,000	$             26,400	$             28,400	$                    74,800
		$             59,600	$             69,000	$             86,000	$                 214,600
2 Payment for Merchandise:
Same	50%
Next	50%
	Total	Apr	May	Jun	Total	Jun 30 Payable
Accounts Payable-April 1	$                                                                23,550	$             23,550			$                    23,550	$                             -
Marchandise Purchased in					$                             -	$                             -
April	$                                                                52,500	$             26,250	$             26,250		$                    52,500	$                             -
May	$                                                                68,250		$             34,125	$             34,125	$                    68,250	$                             -
June	$                                                                52,000			$             26,000	$                    26,000	$                    26,000
Total Cash paid for merchandise	$                                                              196,300	$             49,800	$             60,375	$             60,125	$                 170,300	$                    26,000
C. Selling Administartive Expense Budget:
		Apr	May	Jun	Total
Commission	12% of Sale	$                7,920	$                8,520	$             11,520	$                    27,960
Rent		$                2,300	$                2,300	$                2,300	$                      6,900
Other Expenses	6% of Sale	$                3,960	$                4,260	$                5,760	$                    13,980
Depreciation		$                   954	$                   954	$                   954	$                      2,862
Budgeted Selling and Admin Expense		$             15,134	$             16,034	$             20,534	$                    51,702
Less: Non Cash		$                  -954	$                  -954	$                  -954	$                    -2,862
Cash Disbursment for Selling and Admin		$             14,180	$             15,080	$             19,580	$                    48,840
3. Cash Budget:
		Apr	May	Jun	Total
Beginning Cash Balance		$                7,500	$                4,120	$                4,655	$                      7,500
Cash Receipts from Customers		$             59,600	$             69,000	$             86,000	$                 214,600
Total Cash Available		$             67,100	$             73,120	$             90,655	$                 222,100
Cash Payment for:
Merchandise		$             49,800	$             60,375	$             60,125	$                 170,300
Selling and Admin Expense		$             14,180	$             15,080	$             19,580	$                    48,840
Total Cash Payments		$             63,980	$             75,455	$             79,705	$                 219,140
Surplus/(deficit)		$                3,120	$              -2,335	$             10,950	$                      2,960
Financing:
Borrowing		$                1,000	$                7,000		$                      8,000
Repayment				$              -6,870	$                    -6,870
Interest			$                    -10	$                    -80	$                          -90
Ending Cash Balance		$                4,120	$                4,655	$                4,000	$                      4,000
4. Income Statement
Sales			$           233,000
Less: Cost of Goods Sold
Beginning Inventory		$             39,600
Add: Cost of Goods Purchased		$           172,750
Cost of Goods Available for sale		$           212,350
Less: Ending Inventory		$             37,600
Cost of Goods Sold			$           174,750
Gross Margin			$             58,250
Less: Selling and admin Expense
Commission		$             27,960
Rent		$                6,900
Other Expenses		$             13,980
Depreciation		$                2,862
Total Selling and Admin Expense			$             51,702
Net Operating Income			$                6,548
Less: interest Expense			$                      90
Net Income			$                6,458
5. Budgeted Balance Sheet:
Assets:
Cash		$                2,960
Accounts Receiviable		$             38,400
Merchandise Inventory		$             37,600
Total Current Assets			$             78,960
Building and Equipment, Net	127200-2862	$           124,338
Equipment, Net			$           124,338
Total Assets			$           203,298
Liabilities and Equity
Liabilities:
Accounts Payable		$             26,000
Interest Payable		$                      90
Total Liabilities			$             26,090
Stockholder Equity
Common Stock		$           150,000
Retained Earning	20750+6548	$             27,208
Total Stockholder Equity			$           177,208
Total Liabilities & Equity			$           203,298	$                       -