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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:

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.

Complete the following schedule:

Schedule of Expected Cash Collections
April May June Quarter
Cash sales $48,000
Credit sales 25,600
Total collections $73,600 $0 $0 $0

Complete the following:

Merchandise Purchases Budget
April May June Quarter
Budgeted cost of goods sold $60,000 $63,750
Add desired ending merchandise inventory 51,000
Total needs 111,000 63,750 0 0
Less beginning merchandise inventory 48,000
Required purchases $63,000 $63,750 $0 $0
Budgeted cost of goods sold for April = $80,000 sales × 75% = $60,000.
Add desired ending inventory for April = $63,750 × 80% = $51,000.
Schedule of Expected Cash Disbursements—Merchandise Purchases
April May June Quarter
March purchases $28,800 $28,800
April purchases 31,500 31,500 63,000
May purchases
June purchases
Total disbursements $60,300 $31,500 $0 $91,800

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