The following data relate to the operations of Shilow Company, a wholesale distr
ID: 2392040 • Letter: T
Question
The following data relate to the operations of Shilow Company, a wholesale distributor of consumer goods:
8,500
24,000
45,600
121,200
27,300
150,000
22,000
The gross margin is 25% of sales.
Actual and budgeted sales data:
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.
Each month’s ending inventory should equal 80% of the following month’s budgeted cost of goods sold.
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.
Monthly expenses are as follows: commissions, 12% of sales; rent, $3,300 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $909 per month (includes depreciation on new assets).
Equipment costing $2,500 will be purchased for cash in April.
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 following schedule:
2. Complete the following:
3. Complete the following cash budget:
4. Prepare an absorption costing income statement for the quarter ended June 30.
5. Prepare a balance sheet as of June 30.
Complete the following schedule:
Complete the following:
Complete the following cash budget: (Cash deficiency, repayments and interest should be indicated by a minus sign.)
Prepare an absorption costing income statement for the quarter ended June 30.
Prepare a balance sheet as of June 30.
Current assets as of March 31: Cash $8,500
Accounts receivable $24,000
Inventory $45,600
Building and equipment, net $121,200
Accounts payable $27,300
Common stock $150,000
Retained earnings $22,000
Explanation / Answer
Sales Budget April May June Total Sales 76,000 81,000 106,000 263,000 Cash Sales - 60% 45,600 48,600 63,600 157,800 Credit Sales - 40% 30,400 32,400 42,400 105,200 Answer 1. Schedule of Expected Cash Collections April May June Total Cash Sales 45,600 48,600 63,600 157,800 Credit Sales 24,000 30,400 32,400 86,800 Total cash Collections 69,600 79,000 96,000 244,600 Answer 2. Merchandise Purchase Budget April May June Total Budgeted Cost of Goods Sold - 75% of Sales 57,000 60,750 79,500 197,250 Add: Ending Inventory 48,600 63,600 34,200 34,200 Total Needs 105,600 124,350 113,700 231,450 Less: Beginning Inventory (45,600) (48,600) (63,600) (45,600) Required Purchases 60,000 75,750 50,100 185,850 Schedule of Expected Cash Disbursements - Merchandise Purchases April May June Total Cash Payment March Purchases 27,300 27,300 April Purchases 30,000 30,000 60,000 May Purchases 37,875 37,875 75,750 June Purchases 25,050 25,050 Total Cash Payment to Suppliers 57,300 67,875 62,925 188,100 Selling & Admn. Budget April May June Total Sales Comm. - 12% of Sales 9,120 9,720 12,720 31,560 Rent (Fixed) 3,300 3,300 3,300 9,900 Other Expense - 6% of Sales 4,560 4,860 6,360 15,780 Depreciation 909 909 909 2,727 Total 17,889 18,789 23,289 59,967 Schedule of Cash payments of Selling & Admn. Budget April May June Total Sales Comm. - 12% of Sales 9,120 9,720 12,720 31,560 Rent (Fixed) 3,300 3,300 3,300 9,900 Other Expense - 6% of Sales 4,560 4,860 6,360 15,780 Total 16,980 17,880 22,380 57,240 Answer 3. Cash budget April May June Total Beginning cash Balance 8,500 4,320 4,565 8,500 Add: Cash Collection 69,600 79,000 96,000 244,600 Total Cash available 78,100 83,320 100,565 253,100 Less: Cash Disbursements For Inventory 57,300 67,875 62,925 188,100 For Expenses 16,980 17,880 22,380 57,240 For Equipment 2,500 - - 2,500 Total Cash Disbursement 76,780 85,755 85,305 247,840 Cash Balance Closing 1,320 (2,435) 15,260 5,260 Add: Finance from Bank 3,000 7,000 10,000 Less: Payment to Bank - - (10,000) (10,000) Less: Payment of interet - Bank loan - - (230) (230) Net Cash Balance Closing 4,320 4,565 5,030 5,030 Income Statement For the Qtr Ending June 30 Sales 263,000 Cost of Goods Sold - 75% of sales 197,250 Gross Margin 65,750 Less: Selling & Administration Expense Sales Comm. - 12% of Sales 31,560 Rent (Fixed) 9,900 Other Expense - 6% of Sales 15,780 Depreciation 2,727 59,967 Operating Profit 5,783 Less: Interest Expenses 230 Net Income 5,553 Balance Sheet As on June 30 Assets Current Assets Cash 5,030 Accounts receivables 42,400 Inventory 34,200 81,630 Fixed Assets Building & Equipment ($121,200 + $2,500) 123,700 Less: Dep. (2,727) 120,973 Total Assets 202,603 Liabilities Accounts Payable 25,050 Total liabilities 25,050 Shareholders's Equity Common Stock 150,000 Retained Earnings 27,553 Total Stockholders equity 177,553 Total liabilities & Stockholders' Equity 202,603 - Schedule of Retained Earnings As on June 30 Opening Balance 22,000 Add: net income 5,553 Less: Dividend declared - Closing Balance 27,553
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