Question

The following data relate to the operations of Shilow Company, a wholesale distributor of consumer goods: Current assets as of March 31: Cash Accounts receivable Inventory Building and equipment, net Accounts payable Common stock Retained earnings $ 7,200 $ 18, 800 $ 37,800 $ 123,600 $ 22, 425 $ 150,000 $ 14,975 a. The gross margin is 25% of sales. b. Actual and budgeted sales data: March (actual) April May June July $ 47,000 $ 63,000 $ 68,000 $ 93,000 $ 44,000 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, $2,000 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $927 per month (includes depreciation on new assets). g. Equipment costing $1,200 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 camnaundad Thacomnan d e farm it is nhla randu thalaan ne cumulated intorart at the end of the artar

Answer 1

Required Budgets are as prepared below:

Shillow Company
Schedule of expected Cash collections
For the quarter ended June 30
	Month
Particulars	April	May	June	Total	July
Sales	63,000	68,000	93,000	224,000	44,000
Beginning Accounts Receivable
March Credit sales (47,000*.4)	18,800			18,800
April Cash Sales	37,800			37,800
April Credit Sales		25,200		25,200
May Cash sales		40,800		40,800
May Credit Sales			27,200	27,200
June Cash sales			55,800	55,800
June Credit Sales				0
Total collections	56,600	66,000	83,000	205,600
Account receivable for June sale			37,200
Shillow Company
Merchandise Purchase Budget
For the quarter ended June 30
	Month
Particulars	April	May	June	Total	July
Cost of goods sold (75% of sales)	47,250	51,000	69,750	168,000	33,000
Add: Desired Ending merchandise inventory (80% of next month COGS)	40,800	55,800	26,400	26,400
Total needs	88,050	106,800	96,150	194,400
Less: beginning merchandise inventory	37,800	40,800	55,800	37,800
Required purchase	50,250	66,000	40,350	156,600
Shillow Company
Schedule of expected Cash payments
For the quarter ended June 30
	Month
Particulars	April	May	June	Total
Beginning Accounts Payable (a)	$22,425			$22,425
April Purchases (b)	$25,125	$25,125		$50,250
May Purchases (c )		$33,000	$33,000	$66,000
June Purchases (d)			$20,175	$20,175
Total payments (a+b+c+d)	$47,550	$58,125	$53,175	$158,850
Shillow Company
Cash Budget
For the quarter ended June 30
	Month
Particulars	April	May	June	Total
Beginning Cash balance	7,200	4,710	4,345	7,200
Add: Collection from customers	$56,600	$66,000	$83,000	205,600
cash available for use	$63,800	$70,710	$87,345	$212,800
Less: cash Disbursements
Merchandise purchase	$47,550	$58,125	$53,175	158,850
Commissions (12% of sales)	7,560	8,160	11,160	26,880
Rent	2,000	2,000	2,000	6,000
Other exp (6% of sales)	3,780	4,080	5,580	13,440
Equipment purchase	1,200	0	0	1,200
Total disbusrement	62,090	72,365	71,915	206,370
Cash surplus/Deficit	1,710	-1,655	15,430	6,430
Financing
Borrowing	3,000	6,000		9,000
Repayment			-9,000	-9,000		Interest Exp
Interest			-210	-210		3,000*3%	90
Net cash from Financing	3,000	6,000	9,210	-210		6,000*2%	120
Budgeted ending cash balance	4,710	4,345	6,220	6,220			210
Shillow Company
Budgeted Income Statement
For the quarter ended June 30
Particulars	Amount ($)	Amount ($)
Sales		224,000
Less: Cost of goods sold (75% of sales)		168,000
Gross margin		56,000
Less: Selling and administartive exp
Depreciation (927*3)	2,781
Commissions (12% of sales)	26,880
Rent	6,000
Other exp (6% of sales)	13,440	49,101
Net operating Income		6,899
Interest expense		210
Net Income		6,689
Shillow Company
Budgeted balance Sheet
Jun-30
Assets
Cash	6,220
Accounts Receivable (93,000*.4)	37,200
Inventory (44,000*.75)*.8	26,400
Building and equipment Net (123,600+1,200-2,781)	122,019
Total assets	191,839
Liabilities and Stockholders' Equity
Accounts Payable purchases (40,350*.5)	20,175
Common Stock	150,000
Retained earnings (14975+6689)	21,664
Total liabilities and stockholders' equity	191,839