Question

^{The following data relate to the operations of Shilow Company, a wholesale distributor of consumer goods: Current assets as of March 31: Cash 9,400 27,600 51,000 99,600 30,675 $ 150,000 Accounts receivable Inventory Building and equipment, net Accounts payable Common stock Retained earnings 6,925 a. The gross margin is 25% of sales b. Actual and budgeted sales data: S 69,000 S 85,000 90,000 S 115,000 S 66,000 March (actual) April May June July c. 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. d. Each month's ending inventory should equal 80% of the following month's budgeted cost of goods sold. e. 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. f. Monthly expenses are as follows: commissions, 12% of sales; rent, $4,200 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $747 per month (includes depreciation on new assets). g. Equipment costing $3,400 will be purchased for cash in April. h. 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.}

Answer 1

1)			Shilow company
			Schedule of Expected cash collections
			April	May	June	Quarter
Cash sales			51000	54000	69000	174000
credit sales			27,600	34000	36000	97,600
total collections			78600	88000	105000	271600
	Accounts receivable = 115000*40%=				46000
2)			Merchandise purchase budget
			April	May	June	Quarter
Budgeted cost of goods sold			63750	67500	86250	217500
Add Desired ending inventory			54000	69000	39,600	39,600
total needs			117750	136500	125850	257100
less beginning inventory			51,000	54,000	69,000	51,000
Required purchases			66,750	82,500	56,850	206,100
3)		Schedule of Cash disbursements-Merchandise purhcase
			April	May	June	Quarter
March purchases			30,675			30,675
April purchases			33375	33,375		66750
May purchases				41250	41,250	82500
June purchases					28425	28425
total disbursements			64,050	74625	69675	208,350
4)			Cash budget
			April	May	June	Quarter
Beginning cash balance			9,400	4,050	4,025	9,400
Add Cash collectiosn			78600	88000	105000	271600
total cas h available			88,000	92,050	109,025	281,000
less cash disbursements
for inventory			64,050	74625	69675	208,350
for expenses			19500	20400	24900	64800
for equipment			3,400	0	0	3,400
total cash disbursements			86,950	95025	94575	276,550
Excess(Deficiency)of cash			1,050	-2,975	14,450	4,450
Financing:
Borrowings			3,000	7,000	0	10,000
Repayments			0		-10,000	-10,000
interest			0		-230	-230
total financing			3,000	7,000	-10230	-230
Ending cash balance			4,050	4,025	4,220	4,220
	interest = 3000*1%*3=			90
		7000*1%*2=		140
				230
5)			income statement
	Sales					290000
	cost of goods sold
	Beginning inventor				51,000
	Add purchases				206,100
	goods available for sale				257,100
	ending inventory				39,600	217,500
	Gross margin					72,500
	Selling and administrative expense
	commissions				34800
	rent		(4200*3)		12600
	Depreciation		(747*3)		2241
	other expenses				17400	67041
	net operating					5,459
	interest expense					230
	net income					5,229
		Balance sheet
		Assets
		current assets
		Cash					4,220
		Accounts receivable					46,000
		inventory					39,600
		total current assets					89,820
		Building And equipment ,net					100759
		total Assets					190,579
		liabilities And stockholder 's Equity
		Accounts payable					28,425
		total current assets					28,425
		Stockholder's Equity
		Capital stock				150,000
		Retained earnings				12,154	162,154
		total liabilites & stockholders Equity					190,579