Question

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

Current assets as of March 31:
Cash	$	7,700
Accounts receivable	$	20,800
Inventory	$	40,800
Building and equipment, net	$	129,600
Accounts payable	$	24,300
Common stock	$	150,000
Retained earnings	$	24,600

The gross margin is 25% of sales.

Actual and budgeted sales data:

March (actual)	$	52,000
April	$	68,000
May	$	73,000
June	$	98,000
July	$	49,000

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, $2,500 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $972 per month (includes depreciation on new assets).

Equipment costing $1,700 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.

Answer 1

3) Cash Budget

Cash Budget
	April	May	June	Quarter
Opening cash balance	$7,700	$4,560	$4,045
Add: cash receipts	$61,600	$71,000	$88,000	$2,20,600
Total cash available	$69,300	$75,560	$92,045	$2,36,905
Less: cash disbursements
Purchases	$51,300	$61,875	$56,925	$1,70,100
Commission	$8,160	$8,760	$11,760	$28,680
Rent	$2,500	$2,500	$2,500	$7,500
Other expesnes	$4,080	$4,380	$5,880	$14,340
Equipemnt purchase	$1,700			$1,700
Total cash dusbursements	$67,740	$77,515	$77,065	$2,22,320
Excess(deficinecy) of cash available over disbursements	$1,560	-$1,955	$14,980	$14,585
Financing
Borrowing	$3,000	$6,000	-$9,000
Interest			-$120
Total financing		$9,000
Ending cash balance	$4,560	$4,045	$5,860

Workings notes:

1) Cash collection

	April	May	June	Quarter
Sales	$68,000	$73,000	$98,000	$2,39,000
Cash sales	$40,800	$43,800	$58,800	$1,43,400
Credit sales	$27,200	$29,200	$39,200	$95,600
Creidt sales collection	$20,800	$27,200	$29,200	$77,200
Total cash collection	$61,600	$71,000	$88,000	$2,20,600

b) Purchases payments

COGS	$51,000	$54,750	$73,500	$1,79,250
Add: ending inventory	$43,800	$58,800	$29,400
Less: opening inventory	$40,800	$43,800	$58,800
Purchases	$54,000	$69,750	$44,100	$1,67,850
Purchases payments
Same month	$27,000	$34,875	$22,050	$83,925
1 month	$24,300	$27,000	$34,875	$86,175
Total purchases payments	$51,300	$61,875	$56,925	$1,70,100

4) Income Statement

Income Statement
Sales	$2,39,000
COGS	$1,79,250
Gross margin	$59,750
Operating expenses:
Commission	$28,680
Rent	$7,500
Other expesnes	$14,340
Depreciation	$2,916
Interest	$120
Net income	$6,194

5)

Balance Sheet
Assets	Amount	Liabilities	Amount
Cash	$5,860	Accounts payable	$22,050
Accounts receivable	$39,200	Coommon stock	$1,50,000
Inventory	$29,400	retained earnings	$30,794
Building and equipement	$1,28,384
Total Assets	$2,02,844	Total Liabilities	$2,02,844