a. The gross margin is 25% of sales b. Actual and budgeted sales data Current as

Question

a. The gross margin is 25% of sales b. Actual and budgeted sales data Current assets as of March 31: Cash $ 7,800 $ 21,200 $ 41,400 $ 130,800 $ 24,675 $ 150,000 $ 26,525 Accounts receivable Inventory Building and equipment, net Accounts payable Common stock Retained earnings March (actual) April May June $ 53,000 $ 69,000 $ 74,000 $ 99,000 $ 50,000 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 f. Monthly expenses are as follows: commissions, 12% of sales, rent, $2,600 per month; other expenses (excluding depreciation), 6% g. Equipment costing $1,800 will be purchased for cash in April accounts payable at March 31 are the result of March purchases of inventory of sales. Assume that these expenses are paid monthly. Depreciation is $981 per month (includes depreciation on new assets). 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 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

Explanation / Answer

1) Shilow company Schedule of Expected cash collections April May June Quarter Cash sales 41400 44400 59400 145200 credit sales 21,200 27600 29600 78,400 total collections 62600 72000 89000 223600 Accounts receivable = 99000*40%= 39600 2) Merchandise purchase budget April May June Quarter Budgeted cost of goods sold 51750 55500 74250 181500 37500 Add Desired ending inventory 44400 59400 30,000 30,000 total needs 96150 114900 104250 211500 less beginning inventory 41,400 44,400 59,400 41,400 Required purchases 54,750 70,500 44,850 1,70,100 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 24,675 24,675 April purchases 27375 27,375 54750 May purchases 35250 35,250 70500 June purchases 22425 22425 total disbursements 52,050 62625 57675 1,72,350 Accounts payable june 30 = 22,425 4) Cash budget April May June Quarter Beginning cash balance 7,800 4,530 4,985 7,800 Add Cash collectiosn 62600 72000 89000 223600 total cas h available 70,400 76,530 93,985 2,31,400 less cash disbursements for inventory 52,050 62625 57675 1,72,350 for expenses 15020 15920 20420 51360 for equipment 1,800 0 0 1,800 total cash disbursements 68,870 78545 78095 2,25,510 Excess(Deficiency)of cash 1,530 -2,015 15,890 5,890 Financing: Borrowings 3,000 7,000 0 10,000 Repayments 0 -10,000 -10,000 interest 0 -230 -230 total financing 3,000 7,000 -10230 -230 Ending cash balance 4,530 4,985 5,660 5,660 interest = 3000*1%*3= 90 7000*1%*2= 140 230 5) income statement Sales 242000 cost of goods sold Beginning inventor 41,400 Add purchases 1,70,100 goods available for sale 2,11,500 ending inventory 30,000 1,81,500 Gross margin 60,500 Selling and administrative expense commissions 29040 rent (2600*3) 7800 Depreciation (981*3) 2943 other expenses 14520 54303 net operating 6,197 interest expense 230 net income 5,967 Balance sheet Assets current assets Cash 5,660 Accounts receivable 39,600 inventory 30,000 total current assets 75,260 Building And equipment ,net (130,800+1800-2943) 129657 total Assets 2,04,917 liabilities And stockholder 's Equity Accounts payable 22,425 total current assets 22,425 Stockholder's Equity Capital stock 1,50,000 Retained earnings(26525+5967) 32,492 1,82,492 total liabilites & stockholders Equity 2,04,917

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