Question

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

Current assets as of March 31:
Cash	$	8,700
Accounts receivable	$	24,800
Inventory	$	46,800
Building and equipment, net	$	116,400
Accounts payable	$	28,050
Capital stock	$	150,000
Retained earnings	$	18,650

The gross margin is 25% of sales.

Actual and budgeted sales data:

March (actual)	$	62,000
April	$	78,000
May	$	83,000
June	$	108,000
July	$	59,000

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, $3,500 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $873 per month (includes depreciation on new assets).

Equipment costing $2,700 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 data above:

1. Complete the following schedule.

	Schedule of Expected Cash Collections April May June Quarter Cash sales $46,800 Credit sales 24,800 Total collections $71,600

Complete the following:

	Merchandise Purchases Budget April May June Quarter Budgeted cost of goods sold $58,500 Add desired ending inventory 49,800 Total needs 108,300 Less beginning inventory 46,800 Required purchases $61,500

	Schedule of Expected Cash Disbursements—Merchandise Purchases April May June Quarter March purchases $28,050 $28,050 April purchases 30,750 30,750 61,500 May purchases June purchases Total disbursements

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 $8,700 Add cash collections 71,600 Total cash available 80,300 Less cash disbursements: For inventory 58,800 For expenses 17,540 For equipment 2,700 Total cash disbursements 79,040 Excess (deficiency) of cash 1,260 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:

Answer 1

1)			Shilow company
			Schedule of Expected cash collections
			April	May	June	Quarter
Cash sales			46800	49800	64800	161400
credit sales			24,800	31200	33200	89,200
total collections			71600	81000	98000	250600
	Accounts receivable = 108000*40%=				43200
2)			Merchandise purchase budget
			April	May	June	Quarter
Budgeted cost of goods sold			58500	62250	81000	201750		44250
Add Desired ending inventory			49800	64800	35,400	35,400
total needs			108300	127050	116400	237150
less beginning inventory			46,800	49,800	64,800	46,800
Required purchases			61,500	77,250	51,600	190,350
		cost of goods sold = 75% of sales
		ending inventory = 80% of following months budgeted cost of goods sold
3)		Schedule of Cash disbursements-Merchandise purhcase
			April	May	June	Quarter
March purchases			28,050			28,050
April purchases			30750	30,750		61500
May purchases				38625	38,625	77250
June purchases					25800	25800
total disbursements			58,800	69375	64425	192,600
	Accounts payable june 30 = 25,800
4)			Cash budget
			April	May	June	Quarter
Beginning cash balance			8,700	4,260	4,445	8,700
Add Cash collectiosn			71600	81000	98000	250600
total cas h available			80,300	85,260	102,445	259,300
less cash disbursements
for inventory			58,800	69375	64425	192,600
for expenses			17540	18440	22940	58920
for equipment			2,700	0	0	2,700
total cash disbursements			79,040	87815	87365	254,220
Excess(Deficiency)of cash			1,260	-2,555	15,080	5,080
Financing:
Borrowings			3,000	7,000	0	10,000
Repayments			0		-10,000	-10,000
interest			0		-230	-230
total financing			3,000	7,000	-10230	-230
Ending cash balance			4,260	4,445	4,850	4,850
	interest = 3000*1%*3=			90
		7000*1%*2=		140
				230
5)			income statement
	Sales					269000
	cost of goods sold
	Beginning inventor				46,800
	Add purchases				190,350
	goods available for sale				237,150
	ending inventory				35,400	201,750
	Gross margin					67,250
	Selling and administrative expense
	commissions				32280
	rent				10500
	Depreciation		(873*3)		2619
	other expenses				16140	61539
	net operating					5,711
	interest expense					230
	net income					5,481
		Balance sheet
		Assets
		current assets
		Cash					4,850
		Accounts receivable					43,200
		inventory					35,400
		total current assets					83,450
		Building And equipment ,net (116400+2700-2619)					116481
		total Assets					199,931
		liabilities And stockholder 's Equity
		Accounts payable					25,800
		total current assets					25,800
		Stockholder's Equity
		Capital stock				150,000
		Retained earnings(18,650+5481)				24131	174,131
		total liabilites & stockholders Equity					199,931