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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: (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
  1. 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.

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

  3. 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.

  4. 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).

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

  6. 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

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