The following data relate to the operations df Shilow Company, a wholesale distr

Question

The following data relate to the operations df Shilow Company, a wholesale distributor of consumer goods Current assets as of Karch 31: S 18,888 $ 37,889 $ 123,68 $22,425 s 158,009 S 14,975 Accounts receivable Inventory Building and equipment, net Accounts payable Conmon stock Retained earnings a The gross margin is 25% of sales. b. Actual and budgeted sales data: S 47,800 63,000 68,000 $ 93,088 s 44,080 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 d Each month's ending inventory should equal 80% of the following month's budgeted cost ofgoods sold. f. Monthly expenses are as follows: commissions, 12% of sales, rent, $2,000 per month, other expenses ( 31 are a result of March credit sales. accounts payable at March 31 are the result of March purchases of invento of sal If 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 excluding depreciation 6% les 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. Management would like to maintoin 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 S20.000. The interest rate on these loans is 1% per month and for si mplicity 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

Explanation / Answer

1) Shilow company Schedule of Expected cash collections April May June Quarter Cash sales 37800 40800 55800 134400 credit sales 18,800 25200 27200 71,200 total collections 56600 66000 83000 205600 Accounts receivable = 93000*40%= 37,200 2) Merchandise purchase budget April May June Quarter Budgeted cost of goods sold 47250 51000 69750 168000 33000 Add Desired ending inventory 40800 55800 26,400 26,400 total needs 88050 106800 96150 194400 less beginning inventory 37,800 40,800 55,800 37,800 Required purchases 50,250 66,000 40,350 156,600 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 22,425 22,425 April purchases 25125 25,125 50250 May purchases 33000 33,000 66000 June purchases 20175 20175 total disbursements 47,550 58125 53175 158,850 Accounts payable june 30 = 20,175 4) Cash budget April May June Quarter Beginning cash balance 7,200 4,710 4,345 7,200 Add Cash collectiosn 56600 66000 83000 205600 total cas h available 63,800 70,710 87,345 212,800 less cash disbursements for inventory 47,550 58125 53175 158,850 for expenses 13340 14240 18740 46320 for equipment 1,200 0 0 1,200 total cash disbursements 62,090 72365 71915 206,370 Excess(Deficiency)of cash 1,710 -1,655 15,430 6,430 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 4,710 4,345 6,220 6,220 interest = 3000*1%*3= 90 6000*1%*2= 120 210 5) income statement Sales 224000 cost of goods sold Beginning inventor 37,800 Add purchases 156,600 goods available for sale 194,400 ending inventory 26,400 168,000 Gross margin 56,000 Selling and administrative expense commissions 26880 rent (2000*3) 6000 Depreciation (927*3) 2781 other expenses 13440 49101 net operating 6,899 interest expense 210 net income 6,689 Balance sheet Assets current assets Cash 6,220 Accounts receivable 37,200 inventory 26,400 total current assets 69,820 Building And equipment ,net (123600+1200-2781) 122019 total Assets 191,839 liabilities And stockholder 's Equity Accounts payable 20,175 total current liabilities 20,175 Stockholder's Equity Capital stock 150,000 Retained earnings 21,664 171,664 total liabilites & stockholders Equity 191,839

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