Question

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

Current assets as of March 31:
Cash	$	9,200
Accounts receivable	$	26,800
Inventory	$	49,800
Building and equipment, net	$	104,400
Accounts payable	$	29,925
Common stock	$	150,000
Retained earnings	$	10,275

1. The gross margin is 25% of sales.

2. Actual and budgeted sales data:

March (actual)	$	67,000
April	$	83,000
May	$	88,000
June	$	113,000
July	$	64,000

3. 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.

4. Each month’s ending inventory should equal 80% of the following month’s budgeted cost of goods sold.

5. 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.

6. Monthly expenses are as follows: commissions, 12% of sales; rent, $4,000 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $783 per month (includes depreciation on new assets).

7. Equipment costing $3,200 will be purchased for cash in April.

8. 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:

3. Complete the cash budget.

Shilow Company Cash Budget April May June Quarter Beginning cash balance $9,200 $4,110selected answer correct $4,145selected answer correct $9,200selected answer correct Add collections from customers 76,600 86,000selected answer correct 103,000selected answer correct 265,600selected answer correct Total cash available 85,800 90,110 107,145 274,800 Less cash disbursements: For inventory 62,550 73,125selected answer correct 68,175selected answer correct 203,850selected answer correct For expenses 18,940 19,840selected answer correct 24,340selected answer correct 63,120selected answer correct For equipment 3,200 not attempted not attempted 3,200selected answer correct Total cash disbursements 84,690 92,965 92,515 270,170 Excess (deficiency) of cash available over disbursements 1,110 (2,855) 14,630 4,630 Financing: Borrowings 3,000selected answer correct 7,000selected answer correct not attempted 10,000selected answer correct Repayments not attempted not attempted (10,000)selected answer correct (10,000)selected answer correct Interest not attempted not attempted (130)selected answer incorrect (130)selected answer incorrect Total financing 3,000 7,000 (10,130) (130) Ending cash balance $4,110 $4,145 $4,500 $4,500

4. Prepare an absorption costing income statement for the quarter ended June 30.

Prepare an absorption costing income statement for the quarter ended June 30.

Shilow Company Income Statement For the Quarter Ended June 30 Salesselected answer correct $284,000selected answer correct Cost of goods sold: Beginning inventoryselected answer correct 49,800selected answer correct Purchasesselected answer correct 201,600selected answer correct Goods available for saleselected answer correct 251,400 Ending inventoryselected answer correct 38,400selected answer correct 213,000 Gross marginselected answer correct 71,000 Selling and administrative expenses: Commissionsselected answer correct 34,080selected answer correct Rentselected answer correct 12,000selected answer correct Depreciationselected answer correct 2,349selected answer correct Other expensesselected answer correct 17,040selected answer correct not attempted not attempted not attempted not attempted 65,469 Net operating incomeselected answer correct 5,531 Interest expenseselected answer correct 130selected answer incorrect Net incomeselected answer correct 5,401

5. Prepare a balance sheet as of June 30.

Prepare a balance sheet as of June 30.

Shilow Company Balance Sheet June 30 Assets Current assets: Cashselected answer correct not attempted $4,500selected answer incorrect Accounts receivableselected answer correct not attempted 45,200selected answer correct Inventoryselected answer correct not attempted 38,400selected answer correct not attempted not attempted not attempted not attempted not attempted not attempted Total current assets 88,100 Building and equipment-netselected answer correct 105,251selected answer correct Total assets $193,351 Liabilities and Stockholders’ Equity Accounts payableselected answer correct not attempted $27,675selected answer correct not attempted not attempted not attempted Stockholders' equity: Common stockselected answer correct $150,000selected answer correct Retained earningsselected answer correct 15,676selected answer incorrect not attempted not attempted not attempted not attempted 165,676 Total liabilities and stockholders’ equity $193,351

Answer 1

1)			Shilow company
			Schedule of Expected cash collections
			April	May	June	Quarter
Cash sales			49800	52800	67800	170400
credit sales			26,800	33200	35200	95,200
total collections			76600	86000	103000	265600
	Accounts receivable = 113000*40%=				45200
2)			Merchandise purchase budget
			April	May	June	Quarter
Budgeted cost of goods sold			62250	66000	84750	213000
Add Desired ending inventory			52800	67800	38,400	38,400
total needs			115050	133800	123150	251400
less beginning inventory			49,800	52,800	67,800	49,800
Required purchases			65,250	81,000	55,350	201,600
3)		Schedule of Cash disbursements-Merchandise purhcase
			April	May	June	Quarter
March purchases			29,925			29,925
April purchases			32625	32,625		65250
May purchases				40500	40,500	81000
June purchases					27675	27675
total disbursements			62,550	73125	68175	203,850
4)			Cash budget
			April	May	June	Quarter
Beginning cash balance			9,200	4,110	4,145	9,200
Add Cash collectiosn			76600	86000	103000	265600
total cas h available			85,800	90,110	107,145	274,800
less cash disbursements
for inventory			62,550	73125	68175	203,850
for expenses			18940	19840	24340	63120
for equipment			3,200	0	0	3,200
total cash disbursements			84,690	92965	92515	270,170
Excess(Deficiency)of cash			1,110	-2,855	14,630	4,630
Financing:
Borrowings			3,000	7,000	0	10,000
Repayments			0		-10,000	-10,000
interest			0		-230	-230
total financing			1,000	7,000	-10230	-230
Ending cash balance			4,110	4,145	4,400	4,400
	interest = 3000*1%*3=			90
		7000*1%*2=		140
				230
5)			income statement
	Sales					284000
	cost of goods sold
	Beginning inventor				49,800
	Add purchases				201,600
	goods available for sale				251,400
	ending inventory				38,400	213,000
	Gross margin					71,000
	Selling and administrative expense
	commissions				34080
	rent		(4000*3)		12000
	Depreciation		(783*3)		2349
	other expenses				17040	65469
	net operating					5,531
	interest expense					-230
	net income					5,301
		Balance sheet
		Assets
		current assets
		Cash					4,400
		Accounts receivable					45,200
		inventory					38,400
		total current assets					88,000
		Building And equipment ,net					105251
		total Assets					193,251
		liabilities And stockholder 's Equity
		Accounts payable					27,675
		total current assets					27,675
		Stockholder's Equity
		Capital stock				150,000
		Retained earnings				15,576	165,576
		total liabilites & stockholders Equity					193,251