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

Question

The following data relate to the operations of Shilow Company, a wholesale distributor of consumer goods: Current assets as of March 31:

Cash $ 8,800

Accounts receivable $ 25,200

Inventory $ 47,400

Building and equipment,

net $ 114,000

Accounts payable $ 28,425

Capital stock $ 150,000

Retained earnings $ 16,975

a. The gross margin is 25% of sales.

b. Actual and budgeted sales data:

March (actual) $63,000 April $79,000 May $84,000 June $109,000 July $60,000

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 accounts payable at March 31 are the result of March purchases of inventory.

f. Monthly expenses are as follows: commissions, 12% of sales; rent, $3,600 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $855 per month (includes depreciation on new assets).

g. Equipment costing $2,800 will be purchased for cash in April.

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

5. Prepare a balance sheet as of June 30.

Explanation / Answer

Shilow Company MASTER BUDGET FOR APRIL, MAY AND JUNE Balance sheet Assets $ Liabilities and Equity $ Apr-15 May-15 Jun-15 Apr-15 May-15 Jun-15 Cash 4230 4385 4760 Accounts Payable 31125 39000 26175 Accounts receivable 31600 33600 43600 Interest payable 30 130 0 Ending Inventory 50400 65400 36000 Short term borrowings 3000 10000 0 Total Current assets 86230 103385 84360 Total current liabilities 34155 49130 26175 Building and equipment net 114000 115945 115090 Capital stock 150000 150000 150000 Purchases 2800 0 0 Retained earnings (opening+profit) 18020 19345 22420 Less: Depreciation -855 -855 -855 Total stockholder's equity 168020 169345 172420 Equipment closing balance 115945 115090 114235 Total assets 202175 218475 198595 Total liabilities and equity 202175 218475 198595 Shilow Company MASTER BUDGET FOR APRIL, MAY AND JUNE Income Statement Expenses $ Income $ Apr-15 May-15 Jun-15 Apr-15 May-15 Jun-15 Beginning Inventory 47400 50400 65400 Sles 79000 84000 109000 Purchases 62250 78000 52350 Ending Inventory 50400 65400 36000 Commission on Sales 9480 10080 13080 Rent 3600 3600 3600 Other Expenses 4740 5040 6540 Depreciation 855 855 855 Interest on borroiwings 30 100 100 Excess of Income over expenditure 1045 1325 3075 Total 129400 149400 145000 129400 149400 145000 Shilow Company MASTER BUDGET FOR APRIL, MAY AND JUNE Cash Budget Debit $ Credit $ Apr-15 May-15 Jun-15 Apr-15 May-15 Jun-15 Opening Cash 8800 4230 4385 Cash purchase 31125 39000 26175 Collection from Sales: Payment for Credit purchase   28425 31125 39000 Cash sales 47400 50400 65400 Commission on sales 9480 10080 13080 Credit sales 25200 31600 33600 Rent 3600 3600 3600 Bank Borrowing(increments of $ 1,000) 3000 7000 Other expenses 4740 5040 6540 Equipment Purchase 2800 Repayment of borrowings 10000 Interest on borrowings 230 Closing Cash (minimum -$ 4000) 4230 4385 4760 Total 84400 93230 103385 Total 84400 93230 103385 Working Notes Value (in $) March April May June July A Sales 63000 79000 84000 109000 60000 B Cash Sales (60% of (A)) 37800 47400 50400 65400 36000 C Collection of credit sales (40% of previous month sales) 25200 31600 33600 43600 D Gross Margin (25% of A) 15750 19750 21000 27250 15000 E Cost of Goods sold (75% of sales) - (A) - (D) 47250 59250 63000 81750 45000 F Ending Inventory (80% of next months cost of goods sold) 47400 50400 65400 36000 G Opening Inventory 47400 50400 65400 36000 H Purchases (E +F - G) 62250 78000 52350 I Cash Purchases (1/2 of H) 31125 39000 26175 J paymet of Credit Purchase 28425 31125 39000 Monthly Expenses: Commission -12% of A 9480 10080 13080 Rent 3600 3600 3600 Other expenses -6% of A 4740 5040 6540 April May June A Opening borrowings 0 3000 10000 B Additional 3000 7000 0 C Interest @1% per month (A + B) x 1% 30 100 100 D Repayment 10000 E Closing Balance (A + B -D) 3000 10000 0

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