Question

The following data relate to the operations of Shilow Company, a wholesale distributor of consumer goods: (Need help with Objective 5, *retained earnings)

Current assets as of March 31:
Cash	$	7,900
Accounts receivable	$	21,600
Inventory	$	42,000
Building and equipment, net	$	132,000
Accounts payable	$	25,050
Common stock	$	150,000
Retained earnings	$	28,450

1. The gross margin is 25% of sales.

2. Actual and budgeted sales data:

March (actual)	$	54,000
April	$	70,000
May	$	75,000
June	$	100,000
July	$	51,000

3. 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.

4. Each month’s ending inventory should equal 80% of the following month’s budgeted cost of goods sold.

5. 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.

6. Monthly expenses are as follows: commissions, 12% of sales; rent, $2,700 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $990 per month (includes depreciation on new assets).

7. Equipment costing $1,900 will be purchased for cash in April.

8. 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.

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Here are my current answers for 4 and 5:

4.

Shilow Company
Income Statement
For the Quarter Ended June 30
Sales		$245,000
Cost of goods sold:
Beginning inventory	42,000
Purchases	172,350
Goods available for sale	214,350
Ending inventory		214,350
Gross margin		30,650
Selling and administrative expenses:
Commissions	29,400
Rent	8,100
Depreciation	2,970
Other expenses	14,700
		55,170
Net operating income		(24,520)
Interest expense		230
Net income		(24,750)

5. Prepare a balance sheet as of June 30.

Shilow Company Balance Sheet June 30 Assets Current assets: Cash $5,570 Accounts receivable 40,000 Inventory 30,600 not attempted not attempted Total current assets 76,170 Building and equipment-net 130,930 Total assets $207,100 Liabilities and Stockholders’ Equity Accounts payable $22,800 not attempted Stockholders' equity: Common stock $150,000 Retained earnings 153,700 Total liabilities and stockholders’ equity $176,500

Answer 1