Question

Derek Atienza

Brewer: Introduction to Managerial Accounting, 7e: CSUDH ACC231-04 Spring 2018

CH7 Homework

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2.

value:
10.00 points

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

  

Current assets as of March 31:
Cash	$	7,100
Accounts receivable	$	18,400
Inventory	$	37,200
Building and equipment, net	$	122,400
Accounts payable	$	22,050
Capital stock	$	150,000
Retained earnings	$	13,050

  

a.	The gross margin is 25% of sales.
b.	Actual and budgeted sales data:

  

March (actual)	$46,000
April	$62,000
May	$67,000
June	$92,000
July	$43,000

  

c.	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.
d.	Each month’s ending inventory should equal 80% of the following month’s budgeted cost of goods sold.
e.	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.
f.	Monthly expenses are as follows: commissions, 12% of sales; rent, $1,900 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $918 per month (includes depreciation on new assets).
g.	Equipment costing $1,100 will be purchased for cash in April.
h.	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 data above:
1.	Complete the following schedule.
Shilow Company Schedule of Expected Cash Collections April May June Quarter Cash sales $37,200 Credit sales 18,400 Total collections $55,600 $0 $0 $0

2.	Complete the following: mpany Merchandise Purchases Budget April May June Quarter Budgeted cost of goods sold $46,500 Add desired ending inventory 40,200 Total needs 86,700 0 0 0 Less beginning inventory 37,200 Required purchases $49,500 $0 $0 $0

      

	Budgeted cost of goods sold for April = $62,000 sales × 75% = $46,500.
	Add desired ending inventory for April = $50,250 × 80% = $40,200.

       

	Shilow Company Schedule of Expected Cash Disbursements—Merchandise Purchases April May June Quarter March purchases $22,050 $22,050 April purchases 24,750 24,750 49,500 May purchases June purchases Total disbursements $46,800 $24,750 $0 $71,550

3.

Complete the following cash budget: (Borrow and repay in increments of $1,000. Cash deficiency, repayments and interest should be indicated by a minus sign.) Shilow Company Cash Budget April May June Quarter Beginning cash balance $7,100 Add cash collections 55,600 Total cash available 62,700 0 0 0 Less cash disbursements: For inventory 46,800 For expenses 13,060 For equipment 1,100 Total cash disbursements 60,960 0 0 0 Excess (deficiency) of cash 1,740 0 0 0 Financing: Borrowings Repayments Interest Total financing 0 0 0 0 Ending cash balance $1,740 $0 $0 $

     

4.	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: 0 0 0 Selling and administrative expenses: 0 0 0

        

5.	Prepare a balance sheet as of June 30.
	Shilow Company Balance Sheet June 30 Assets Current assets: Total current assets 0 Total assets $0 Liabilities and Stockholders’ Equity Stockholders' equity: 0 Total liabilities and stockholders’ equity $0

     

Answer 1

Interest Expense = (3,000*1%*3)+(6,000*1%*2) = $210

Building and Equipment, Net = $122,400 + $1,100 - $2,754 = $120,746
Retained Earnings = $13,050 + $6,806 = $19,856