Question

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

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

The gross margin is 25% of sales.

Actual and budgeted sales data:

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

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, $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).

Equipment costing $1,100 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

1)			Shilow company
			Schedule of Expected cash collections
			April	May	June	Quarter
Cash sales			37200	40200	55200	132600
credit sales			18,400	24800	26800	70,000
total collections			55600	65000	82000	202600
	Accounts receivable = 92000*40%=				36800
2)			Merchandise purchase budget
			April	May	June	Quarter
Budgeted cost of goods sold			46500	50250	69000	165750		32250
Add Desired ending inventory			40200	55200	25800	25,800
total needs			86700	105450	94800	191550
less beginning inventory			37,200	40,200	55,200	37,200
Required purchases			49,500	65,250	39,600	154,350
		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			22,050			22,050
April purchases			24750	24,750		49500
May purchases				32625	32,625	65250
June purchases					19800	19800
total disbursements			46,800	57375	52425	156,600
	Accounts payable june 30 = 19,800
4)			Cash budget
			April	May	June	Quarter
Beginning cash balance			7,100	4,740	4,405	7,100
Add Cash collectiosn			55600	65000	82000	202600
total cas h available			62,700	69,740	86,405	209,700
less cash disbursements
for inventory			46,800	57375	52425	156,600
for expenses			13060	13960	18460	45480
for equipment			1,100	0	0	1,100
total cash disbursements			60,960	71335	70885	203,180
Excess(Deficiency)of cash			1,740	-1,595	15,520	6,520
Financing:
Borrowings			3,000	6,000	0	9,000
Repayments			0		-9,000	-9,000
interest			0		-210	-210
total financing			3,000	4405	-9210	-210
Ending cash balance			4,740	4,405	6310	6,310
	interest = 3000*1%*3=			90
		6000*1%*2=		120
5)			income statement
	Sales					221000
	cost of goods sold
	Beginning inventor				37,200
	Add purchases				154,350
	goods available for sale				191,550
	ending inventory				25,800	165,750
	Gross margin					55,250
	Selling and administrative expense
	commissions				26520
	rent				5700
	Depreciation		(918*3)		2754
	other expenses				13260	48234
	net operating					7,016
	interest expense					210
	net income					6,806
		Balance sheet
		Assets
		current assets
		Cash					6,310
		Accounts receivable					36,800
		inventory					25,800
		total current assets					68,910
		Building And equipment ,net (122,400+1100-2754)					120746
		total Assets					189,656
		liabilities And stockholder 's Equity
		Accounts payable					19,800
		total current assets					19,800
		Stockholder's Equity
		Capital stock				150,000
		Retained earnings(13050+6806				19856	169,856
		total liabilites & stockholders Equity					189,656