Question

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

Current assets as of March 31:
Cash	$	8,900
Accounts receivable	$	25,600
Inventory	$	48,000
Building and equipment, net	$	111,600
Accounts payable	$	28,800
Common stock	$	150,000
Retained earnings	$	15,300

The gross margin is 25% of sales.

Actual and budgeted sales data:

March (actual)	$	64,000
April	$	80,000
May	$	85,000
June	$	110,000
July	$	61,000

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, $3,700 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $837 per month (includes depreciation on new assets).

Equipment costing $2,900 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

Cash Budget	April	May	June	Quarter
Begining cash balace	8,900	4,200	4,295	8,900
Add : cash collection	73,600	83,000	100,000	256,600
Total cash available	82,500	87,200	104,295	265,500
Less: cash disbursement				-
For inventory	60,300	70,875	65,925	197,100
for expense	18,100	19,000	23,500	60,600
for equipment	2,900	-	-	2,900
total cash didbursement	81,300	89,875	89,425	260,600
Excess/(deficiency) of cash	1,200	-   2,675	14,870	4,900
Financing (see working)				-
Borrowing	3,000	7,000	-	10,000
Repayment	-	-	-   10,000	-    10,000
Interest	-	-         30	-         100	-          130
Total financing	3,000	6,970	-   10,100	-          130
Ending cash balance	4,200	4,295	4,770	4,770

Working for Borrowing/Repayment	April	May	June
Minimum balance required	4,000	4,000	4,000
Excess/(deficiency) of cash	1,200	-2,675	14,870
Borrow/(Repay)	2,800	6,675	-10,870
Borrow/(Repay) : in increment of $1000	3,000	7,000	-10,000
Working for Interest	April	May	June
Borrowed	3,000	7,000	-
Repaid	-	-	-                     10,000
Interest	-	30	100
		(3000*.01)	(3000+7000)*1%

Income Statement	$	$
SALES		275,000
COGS
BEGINING INVENTORY	48,000
PURCHASES	194,850
GOODS AVILAVBLE FOR SALES	242,850
ENDING INVENTORY	36,600	206,250
GROSS MARGIN		68,750
SELLING AND ADMINISTRATIVE
COMMISSION	33,000
RENT	11,100
DEPRECIATION	2,511
OTHER EXPENSES	16,500
		63,111
NET OPERATING INCOME		5,639
INTEREST EXPENSE (FROM CASH BUDGET)		130
NET INCOME		5,509

Balance Sheet	$	$
Assets
Current assets
cash (from cash budget)		4,770
Account receivable		44,000
inventory		36,600
Total current assets		85,370
Building & equipmentnet		111,989
Total asset		197,359
Liabilities & Equity
Accounts Payable		26,550
stock holders equity
common stock	150,000
Retained earning (15300+5509)	20,809	170,809
Total liabilities & stock holders equity		197,359