The following data relate to the operations of Shilow Company, a wholesale distr
ID: 2403018 • Letter: T
Question
The following data relate to the operations of Shilow Company, a wholesale distributor of consumer goods:
8,400
23,600
45,000
123,600
26,925
150,000
23,675
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, $3,200 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).
Equipment costing $2,400 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: 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 $8,400
Accounts receivable $23,600
Inventory $45,000
Building and equipment, net $123,600
Accounts payable $26,925
Common stock $150,000
Retained earnings $23,675
Explanation / Answer
Sales Budget April May June Total Sales 75,000 80,000 105,000 260,000 Cash Sales - 60% 45,000 48,000 63,000 156,000 Credit Sales - 40% 30,000 32,000 42,000 104,000 Answer 1. Schedule of Expected Cash Collections April May June Total Cash Sales 45,000 48,000 63,000 156,000 Credit Sales 23,600 30,000 32,000 85,600 Total cash Collections 68,600 78,000 95,000 241,600 Answer 2. Merchandise Purchase Budget April May June Total Budgeted Cost of Goods Sold - 75% of Sales 56,250 60,000 78,750 195,000 Add: Ending Inventory 48,000 63,000 33,600 33,600 Total Needs 104,250 123,000 112,350 228,600 Less: Beginning Inventory (45,000) (48,000) (63,000) (45,000) Required Purchases 59,250 75,000 49,350 183,600 Schedule of Expected Cash Disbursements - Merchandise Purchases April May June Total Cash Payment March Purchases 26,925 26,925 April Purchases 29,625 29,625 59,250 May Purchases 37,500 37,500 75,000 June Purchases 24,675 24,675 Total Cash Payment to Suppliers 56,550 67,125 62,175 185,850 Selling & Admn. Budget April May June Total Sales Comm. - 12% of Sales 9,000 9,600 12,600 31,200 Rent (Fixed) 3,200 3,200 3,200 9,600 Other Expense - 6% of Sales 4,500 4,800 6,300 15,600 Depreciation 927 927 927 2,781 Total 17,627 18,527 23,027 59,181 Schedule of Cash payments of Selling & Admn. Budget April May June Total Sales Comm. - 12% of Sales 9,000 9,600 12,600 31,200 Rent (Fixed) 3,200 3,200 3,200 9,600 Other Expense - 6% of Sales 4,500 4,800 6,300 15,600 Total 16,700 17,600 22,100 56,400 Answer 3. Cash budget April May June Total Beginning cash Balance 8,400 4,350 4,625 8,400 Add: Cash Collection 68,600 78,000 95,000 241,600 Total Cash available 77,000 82,350 99,625 250,000 Less: Cash Disbursements For Inventory 56,550 67,125 62,175 185,850 For Expenses 16,700 17,600 22,100 56,400 For Equipment 2,400 - - 2,400 Total Cash Disbursement 75,650 84,725 84,275 244,650 Cash Balance Closing 1,350 (2,375) 15,350 5,350 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 4,350 4,625 5,120 5,120 Income Statement For the Qtr Ending June 30 Sales 260,000 Cost of Goods Sold - 75% of sales 195,000 Gross Margin 65,000 Less: Selling & Administration Expense Sales Comm. - 12% of Sales 31,200 Rent (Fixed) 9,600 Other Expense - 6% of Sales 15,600 Depreciation 2,781 59,181 Operating Profit 5,819 Less: Interest Expenses 230 Net Income 5,589 Balance Sheet As on June 30 Assets Current Assets Cash 5,120 Accounts receivables 42,000 Inventory 33,600 80,720 Fixed Assets Building & Equipment ($123,600 + $2,400) 126,000 Less: Dep. (2,781) 123,219 Total Assets 203,939 Liabilities Accounts Payable 24,675 Total liabilities 24,675 Shareholders's Equity Common Stock 150,000 Retained Earnings 29,264 Total Stockholders equity 179,264 Total liabilities & Stockholders' Equity 203,939 - Schedule of Retained Earnings As on June 30 Opening Balance 23,675 Add: net income 5,589 Less: Dividend declared - Closing Balance 29,264
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