Question

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

Current assets as of March 31:
Cash	$	9,300
Accounts receivable	$	27,200
Inventory	$	50,400
Building and equipment, net	$	102,000
Accounts payable	$	30,300
Common stock	$	150,000
Retained earnings	$	8,600

1. The gross margin is 25% of sales.

2. Actual and budgeted sales data:

March (actual)	$	68,000
April	$	84,000
May	$	89,000
June	$	114,000
July	$	65,000

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, $4,100 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $765 per month (includes depreciation on new assets).

7. Equipment costing $3,300 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:

1. Complete the schedule of expected cash collections.

Complete the schedule of expected cash collections.

	Schedule of Expected Cash Collections April May June Quarter Cash sales $50,400 Credit sales 27,200 Total collections $77,600

2. Complete the merchandise purchases budget and the schedule of expected cash disbursements for merchandise purchases.

Merchandise Purchases Budget April May June Quarter Budgeted cost of goods sold $63,000 $66,750 Add desired ending merchandise inventory 53,400 Total needs 116,400 Less beginning merchandise inventory 50,400 Required purchases $66,000 Budgeted cost of goods sold for April = $84,000 sales × 75% = $63,000. Add desired ending inventory for April = $66,750 × 80% = $53,400. Schedule of Expected Cash Disbursements—Merchandise Purchases April May June Quarter March purchases $30,300 $30,300 April purchases 33,000 33,000 66,000 May purchases June purchases Total disbursements

3. Complete the 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			50400	53400	68400	172200
credit sales			27,200	33600	35600	96,400
total collections			77600	87000	104000	268600
	Accounts receivable = 114000*40%=				45600
2)			Merchandise purchase budget
			April	May	June	Quarter
Budgeted cost of goods sold			63000	66750	85500	215250
Add Desired ending inventory			53400	68400	39,000	39,000
total needs			116400	135150	124500	254250
less beginning inventory			50,400	53,400	68,400	50,400
Required purchases			66,000	81,750	56,100	203,850
3)		Schedule of Cash disbursements-Merchandise purhcase
			April	May	June	Quarter
March purchases			30,300			30,300
April purchases			33000	33,000		66000
May purchases				40875	40,875	81750
June purchases					28050	28050
total disbursements			63,300	73875	68925	206,100
4)			Cash budget
			April	May	June	Quarter
Beginning cash balance			9,300	4,080	4,085	9,300
Add Cash collectiosn			77600	87000	104000	268600
total cas h available			86,900	91,080	108,085	277,900
less cash disbursements
for inventory			63,300	73875	68925	206,100
for expenses			19220	20120	24620	63960
for equipment			3,300	0	0	3,300
total cash disbursements			85,820	93995	93545	273,360
Excess(Deficiency)of cash			1,080	-2,915	14,540	4,540
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			4,080	4,085	4,310	4,310
	interest = 3000*1%*3=			90
		7000*1%*2=		140
				230
5)			income statement
	Sales					287000
	cost of goods sold
	Beginning inventor				50,400
	Add purchases				203,850
	goods available for sale				254,250
	ending inventory				39,000	215,250
	Gross margin					71,750
	Selling and administrative expense
	commissions				34440
	rent		(4100*3)		12300
	Depreciation		(765*3)		2295
	other expenses				17220	66255
	net operating					5,495
	interest expense					230
	net income					5,265
		Balance sheet
		Assets
		current assets
		Cash					4,310
		Accounts receivable					45,600
		inventory					39,000
		total current assets					88,910
		Building And equipment ,net					103005
		total Assets					191,915
		liabilities And stockholder 's Equity
		Accounts payable					28,050
		total current assets					28,050
		Stockholder's Equity
		Capital stock				150,000
		Retained earnings				13,865	163,865
		total liabilites & stockholders Equity					191,915