Question

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

Current assets as of March 31:
Cash	$	8,500
Accounts receivable	$	24,000
Inventory	$	45,600
Building and equipment, net	$	121,200
Accounts payable	$	27,300
Common stock	$	150,000
Retained earnings	$	22,000

The gross margin is 25% of sales.

Actual and budgeted sales data:

March (actual)	$	60,000
April	$	76,000
May	$	81,000
June	$	106,000
July	$	57,000

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, $3,300 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $909 per month (includes depreciation on new assets).

Equipment costing $2,500 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.

Complete the following schedule:

	Schedule of Expected Cash Collections April May June Quarter Cash sales $45,600 Credit sales 24,000 Total collections $69,600

Complete the following:

Merchandise Purchases Budget April May June Quarter Budgeted cost of goods sold $57,000 $60,750 Add desired ending merchandise inventory 48,600 Total needs 105,600 Less beginning merchandise inventory 45,600 Required purchases Budgeted cost of goods sold for April = $76,000 sales × 75% = $57,000. Add desired ending inventory for April = $60,750 × 80% = $48,600. Schedule of Expected Cash Disbursements—Merchandise Purchases April May June Quarter March purchases $27,300 $27,300 April purchases 30,000 30,000 60,000 May purchases June purchases Total disbursements

Complete the following cash budget: (Cash deficiency, repayments and interest should be indicated by a minus sign.)

Shilow Company Cash Budget April May June Quarter Beginning cash balance $8,500 Add collections from customers 69,600 Total cash available 78,100 Less cash disbursements: For inventory 57,300 For expenses 16,980 For equipment 2,500 Total cash disbursements 76,780 Excess (deficiency) of cash available over disbursements 1,320 Financing: Borrowings Repayments Interest Total financing Ending cash balance

Prepare an absorption costing income statement for the quarter ended June 30.

	Shilow Company Income Statement For the Quarter Ended June 30 Cost of goods sold: Selling and administrative expenses:

Prepare a balance sheet as of June 30.

	Shilow Company Balance Sheet June 30 Assets Current assets: Total current assets Total assets Liabilities and Stockholders’ Equity Stockholders' equity: Total liabilities and stockholders’ equity

Answer 1

Sales Budget
	April	May	June	Total
Sales	76,000	81,000	106,000	263,000
Cash Sales - 60%	45,600	48,600	63,600	157,800
Credit Sales - 40%	30,400	32,400	42,400	105,200
Answer 1.
Schedule of Expected Cash Collections
	April	May	June	Total
Cash Sales	45,600	48,600	63,600	157,800
Credit Sales	24,000	30,400	32,400	86,800
Total cash Collections	69,600	79,000	96,000	244,600
Answer 2.
Merchandise Purchase Budget
	April	May	June	Total
Budgeted Cost of Goods Sold - 75% of Sales	57,000	60,750	79,500	197,250
Add: Ending Inventory	48,600	63,600	34,200	34,200
Total Needs	105,600	124,350	113,700	231,450
Less: Beginning Inventory	(45,600)	(48,600)	(63,600)	(45,600)
Required Purchases	60,000	75,750	50,100	185,850
Schedule of Expected Cash Disbursements - Merchandise Purchases
	April	May	June	Total
Cash Payment
March Purchases	27,300			27,300
April Purchases	30,000	30,000		60,000
May Purchases		37,875	37,875	75,750
June Purchases			25,050	25,050
Total Cash Payment to Suppliers	57,300	67,875	62,925	188,100
Selling & Admn. Budget
	April	May	June	Total
Sales Comm. - 12% of Sales	9,120	9,720	12,720	31,560
Rent (Fixed)	3,300	3,300	3,300	9,900
Other Expense - 6% of Sales	4,560	4,860	6,360	15,780
Depreciation	909	909	909	2,727
Total	17,889	18,789	23,289	59,967
Schedule of Cash payments of Selling & Admn. Budget
	April	May	June	Total
Sales Comm. - 12% of Sales	9,120	9,720	12,720	31,560
Rent (Fixed)	3,300	3,300	3,300	9,900
Other Expense - 6% of Sales	4,560	4,860	6,360	15,780
Total	16,980	17,880	22,380	57,240
Answer 3.
Cash budget
	April	May	June	Total
Beginning cash Balance	8,500	4,320	4,565	8,500
Add: Cash Collection	69,600	79,000	96,000	244,600
Total Cash available	78,100	83,320	100,565	253,100
Less: Cash Disbursements
For Inventory	57,300	67,875	62,925	188,100
For Expenses	16,980	17,880	22,380	57,240
For Equipment	2,500	-	-	2,500
Total Cash Disbursement	76,780	85,755	85,305	247,840
Cash Balance Closing	1,320	(2,435)	15,260	5,260
Add: Finance from Bank	3,000	7,000		10,000
Less: Payment to Bank	-	-	(10,000)	(10,000)
Less: Payment of interet - Bank loan	-	-	(230)	(230)
Net Cash Balance Closing	4,320	4,565	5,030	5,030
Income Statement
For the Qtr Ending June 30
Sales		263,000
Cost of Goods Sold - 75% of sales		197,250
Gross Margin		65,750
Less: Selling & Administration Expense
Sales Comm. - 12% of Sales	31,560
Rent (Fixed)	9,900
Other Expense - 6% of Sales	15,780
Depreciation	2,727	59,967
Operating Profit		5,783
Less: Interest Expenses		230
Net Income		5,553
Balance Sheet
As on June 30
Assets
Current Assets
Cash	5,030
Accounts receivables	42,400
Inventory	34,200	81,630
Fixed Assets
Building & Equipment ($121,200 + $2,500)	123,700
Less: Dep.	(2,727)	120,973
Total Assets		202,603
Liabilities
Accounts Payable		25,050
Total liabilities		25,050
Shareholders's Equity
Common Stock	150,000
Retained Earnings	27,553
Total Stockholders equity		177,553
Total liabilities & Stockholders' Equity		202,603		-
Schedule of Retained Earnings
As on June 30
Opening Balance		22,000
Add: net income		5,553
Less: Dividend declared		-
Closing Balance		27,553