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 $ 8.780 $ 24,888 $ 46,800 $116,480 $ 28.050 $ 150.000 $ 18,650 a. The gross margin is 25% of sales. b. Actual and budgeted sales data: March (actual) April May $ 78,000 $ 83,000 $ 100.000 $ 59.888 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, $3,500 per month, other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $873 per month (includes depreciation on new assets). g. Equipment costing $2,700 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. Required: Using the preceding data: 1. Complete the schedule of expected cash collections. 2. Complete the merchandise purchases budget and the schedule of expected cash disbursements for merchandise purchases. 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. Required i Required 2 Required 3 Required 4 Requi Required 1 Required 2 Required 3 Required 4 Required 5 Required 1 Complete the schedule of expected cash collections. Complete the merchandise purchases budget and the schedule of expected cash disburser Quarter Schedule of Expected Cash Collections April May June Cash sales $ 46,800 Credit sales 24,800 Total collections $71,600 $ 0 $ 0 $ 0 Required 1 Merchandise Purchases Budget April May June Quarter Budgeted cost of goods sold $58,500 62.250 Add desired ending merchandise inventory 49,800 Total needs 108,300 62,250 0 Less beginning merchandise inventory 46,8001 Required purchases $61,500 62.250 S O S Budgeted cost of goods sold for April = $78,000 sales x 75% = 559,500. Add desired ending inventory for April = $62.250 x 80% = $49,800. Schedule of Expected Cash Disbursements--Merchandise Purchases April May June Quarter March purchases $ 28,050 $ 28,050 April purchases 30,750 30.750 61,500 May purchases

Answer 1

solution: Sales budget Total Sales March April May June 62000 78000 83000 July 108,000 59000 1.Schedule of Expected Cash Collections cash sales (60% of total sales) credit sales (40% of previous month sales) Total collection April May June | 46800 49800 64800 24800 31200 33200 71600 81000 98000 Quarter - Total 1 61400 89200 250600 2a. Purchase budget April May June Quarter Budgeted Cost of Goods Sold(75% of Sales) 58500 62250 81000 Add: Desired Ending Inventory(80% of Next Month's COGS) | 49800 64800 35400|| Total Needs 108300 127050 116400 Less: Beginning Inventory 46800 49800 64800 Required Inventory Purchase 61500 77250 516001 201750 35400 237150 46800 190350|| 2b.cash Disbursement for Purchase March Purchase April Purchase (50% of 61500) May Purchase (50% of 77250) June Purchase (50% of 51600) Total cash Disbursement for Purchase April May June Quarter 28050 3075030750 38625 38625 25800 58800 69375 64425 28050 61500 77250 25800 192600

April May June Quarter 8700 4260 4445 71600 81000 98000 80300 85260 102445 8700 250600 259300 3.Cash budget Beginning Cash Balance Add: Cash Collection Total Cash Available Less: Cash Disbursement For Inventory For expense ** For equipment Total Cash Disbursement Excess/Deficiency) Financing: Borrowing Repayments Interest(4000*0.03+7000*0.02) Total Financing Ending Cash Balance 58800 69375 64425 17540 18440 22940 2700 0 0 79040 87815 87365 1260 -2555 15080 192600 58920 2700 254220 5080 3000 70000 0 -10000 0 -230 7000 -10230 4445 4850 10000 -10000 -230 -230 4850 3000 4260 Quarter **Cash Disbursement for selling and administrative Expenses April May June commission (12% of sales) 9360 9960 12960 Rent 3500 3500 3500 Other Expenses(6% of Sales) 46804980 6480 Total Cash Disbursement 17540 18440 22940 32280 10500 16140 58920

5.Balance sheet Current Assets 269000 Cash 4850 43200 35400 4.In come statement sales (78000+83000+108000) cost of goods sold : beginning inventory Purchases goods availalble for sale ending inventory Gross margin selling and administrative expense: commission Rent other expense depreciation (873*3) 46800 190350 237150 35400 201750 67250 83450 Account Receivable (40%*108000) Inventory Total Current Assets Building and Equipment 116400+2700-2619 Total Assets 116481 199931 32280 10500 16140 2619 25800 Liabilities and Equity Current liabities : Account Payable (50%*51600) Equity: common stock Retained Earnings** net operating income Interest expense net income /(loss) 61539 5711 230 5481 150000 24131 174131 199931 Total Liability and Equity **Retained earning Beginning balance add: Net Income Ending balance 18650 5481 24131