The following data relate to the operations of Shilow Company, a wholesale distr
ID: 2399544 • Letter: T
Question
The following data relate to the operations of Shilow Company, a wholesale distributor of consumer goods:
7,700
20,800
40,800
129,600
24,300
150,000
24,600
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, $2,500 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $972 per month (includes depreciation on new assets).
Equipment costing $1,700 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 of expected cash collections
2. Complete the following: Merchandise Purchases Budget
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.
Current assets as of March 31: Cash $7,700
Accounts receivable $20,800
Inventory $40,800
Building and equipment, net $129,600
Accounts payable $24,300
Common stock $150,000
Retained earnings $24,600
Explanation / Answer
1) Shilow company Schedule of Expected cash collections April May June Quarter Cash sales 40800 43800 58800 143400 credit sales 20,800 27200 29200 77,200 total collections 61600 71000 88000 220600 Accounts receivable = 98000*40%= 39,200 2) Merchandise purchase budget April May June Quarter Budgeted cost of goods sold 51000 54750 73500 179250 36750 Add Desired ending inventory 43800 58800 29,400 29,400 total needs 94800 113550 102900 208650 less beginning inventory 40,800 43,800 58,800 40,800 Required purchases 54,000 69,750 44,100 167,850 cost of goods sold = 75% of sales ending inventory = 80% of following months budgeted cost of goods sold 3) Schedule of Cash disbursements-Merchandise purhcase April May June Quarter March purchases 24,300 24,300 April purchases 27000 27,000 54000 May purchases 34875 34,875 69750 June purchases 22050 22050 total disbursements 51,300 61875 56925 170,100 Accounts payable june 30 = 22,050 4) Cash budget April May June Quarter Beginning cash balance 7,700 4,560 4,045 7,700 Add Cash collectiosn 61600 71000 88000 220600 total cas h available 69,300 75,560 92,045 228,300 less cash disbursements for inventory 51,300 61875 56925 170,100 for expenses 14740 15640 20140 50520 for equipment 1,700 0 0 1,700 total cash disbursements 67,740 77515 77065 222,320 Excess(Deficiency)of cash 1,560 -1,955 14,980 5,980 Financing: Borrowings 3,000 6,000 0 9,000 Repayments 0 -9,000 -9,000 interest 0 -210 -210 total financing 3,000 6,000 -9210 -210 Ending cash balance 4,560 4,045 5,770 5,770 interest = 3000*1%*3= 90 6000*1%*2= 120 210 5) income statement Sales 239000 cost of goods sold Beginning inventor 40,800 Add purchases 167,850 goods available for sale 208,650 ending inventory 29,400 179,250 Gross margin 59,750 Selling and administrative expense commissions 28680 rent (2500*3) 7500 Depreciation (972*3) 2916 other expenses 14340 53436 net operating 6,314 interest expense 210 net income 6,104 Balance sheet Assets current assets Cash 5,770 Accounts receivable 39,200 inventory 29,400 total current assets 74,370 Building And equipment ,net (129600+1700-2916) 128384 total Assets 202,754 liabilities And stockholder 's Equity Accounts payable 22,050 total current liabilities 22,050 Stockholder's Equity Capital stock 150,000 Retained earnings 30,704 180,704 total liabilites & stockholders Equity 202,754
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