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

Schedule of expected cash collections
	Apr	May	June	Quarter
Cash Sales	45,600.00	48,600.00	63,600.00	157,800.00
Collections	24,000.00	30,400.00	32,400.00	86,800.00
Expected cash collections	69,600.00	79,000.00	96,000.00	244,600.00

Merchandise purchases budget
	Apr	May	June	Quarter
Cost of Goods Sold (Sales *75%)	57,000.00	60,750.00	79,500.00	197,250.00
Ending inventory(80% of Next Month Sale)	48,600.00	63,600.00	34,200.00	34,200.00
Total Needs	105,600.00	124,350.00	113,700.00	231,450.00
Begning Inventory	45,600.00	48,600.00	63,600.00	45,600.00
Merchandise purchases*	60,000.00	75,750.00	50,100.00	185,850.00

Schedule of expected cash disbursements for Merchandise
	Apr	May	June	Quarter
March purchases	27,300.00			27,300.00
April purchases	30,000.00	30,000.00		60,000.00
May purchases		37,875.00	37,875.00	75,750.00
June purchases			25,050.00	25,050.00
Expected cash disbursements	57,300.00	67,875.00	62,925.00	188,100.00

Cash Budget
	Apr	May	June	Quarter
Balance, 1 Jan	8,500.00	4,320.00	4,565.00	8,500.00
Cash Collections	69,600.00	79,000.00	96,000.00	244,600.00
Cash Available	78,100.00	83,320.00	100,565.00	253,100.00
Expected payments
Expected cash disbursements:
For inventory	57,300.00	67,875.00	62,925.00	188,100.00
For expenses*	16,980.00	17,880.00	22,380.00	57,240.00
For equipment	2,500.00
Total Expected payment	76,780.00	85,755.00	85,305.00	247,840.00
(Shortage)/Excess Cash	1,320.00	(2,435.00)	15,260.00	5,260.00
Financing:
Borrowing	3,000.00	7,000.00		10,000.00
Repayment			10,000.00	10,000.00
Interest(3000*2%+7000*1%)			130.00	130.00
Closing cash Balance	4,320.00	4,565.00	5,130.00	5,130.00

Income statement for the quarter ended June 30
Sales	263,000.00
Cost of Goods Sold*	197,250.00
Gross Profit	65,750.00
Selling and Administrative Expenses:
Rent	9,900.00
Commissions	31,560.00
Other expenses	15,780.00
Depreciation(909*3)	2,727.00
Total Selling and Administrative Expenses	59,967.00
Profit Before Interest and Tax	5,783.00
Interest Expesnes	130.00
Net Income	5,653.00

Balance Sheet as at June 30
Assets
Cash	5,130.00
Accounts receivable	42,400.00
Inventory	34,200.00
Total current Assets	81,730.00
Plant and equipment, net of depreciation	120,973.00
Total assets	202,703.00
Liabilities and Stockholders’ Equity
Accounts payable	25,050.00
Stockholders' equity:
Common stock	150,000.00
Retained earnings	27,653.00
Total Stockholders' equity	177,653.00
Total liabilities and stockholders’ equity	202,703.00

Workings:

Sales
	Mar	Apr	May	Jun	July
Sales	60,000.00	76,000.00	81,000.00	106,000.00	57,000.00
Cash Sales	36,000.00	45,600.00	48,600.00	63,600.00	34,200.00
Credt Sales	24,000.00	30,400.00	32,400.00	42,400.00	22,800.00

Other expenses
	Apr	May	June	Quarter
Rent	3,300.00	3,300.00	3,300.00	9,900.00
Commissions	9,120.00	9,720.00	12,720.00	31,560.00
other expenses	4,560.00	4,860.00	6,360.00	15,780.00
Total Selling and Admin Expesnes	16,980.00	17,880.00	22,380.00	57,240.00

Cost of Goods Sold
Beginning Stock	45,600.00
Purchases	185,850.00
Closing Stock	34,200.00
Cost of Goods Sold	197,250.00

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