Problem 9-27 Completing a Master Budget [LO9-2, LO9-4, LO9-7, LO9-8, LO9-9, LO9-

Question

Problem 9-27 Completing a Master Budget [LO9-2, LO9-4, LO9-7, LO9-8, LO9-9, LO9-10] The following data relate to the operations of Shilow Company, a wholesale distributor of consumer goods: Current assets as of March 31 $ 8,400 $ 23,600 45,000 $123,600 $ 26,925 $ 150,000 23,675 Accounts receivable Building and equipment, net Accounts payable Capital stock Retained earnings The gross margin is 25% of sales. b. Actual and budgeted sales data: March (actual) April May June July 59,000 $ 75,000 $ 80,000 $105,000 $ 56,000 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, $3,200 per month; other expenses (excluding depreciation), 6% of g. Equipment costing $2,400 will be purchased for cash in April. accounts payable at March 31 are the result of March purchases of inventory. sales. Assume that these expenses are paid monthly. Depreciation is $927 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

Explanation / Answer

1) Shilow company Schedule of Expected cash collections April May June Quarter Cash sales 45000 48000 63000 156000 credit sales 23,600 30000 32000 85,600 total collections 68600 78000 95000 241600 Accounts receivable = 105000*40%= 42000 2) Merchandise purchase budget April May June Quarter Budgeted cost of goods sold 56250 60000 78750 195000 42000 Add Desired ending inventory 48000 63000 33,600 33,600 total needs 104250 123000 112350 228600 less beginning inventory 45,000 48,000 63,000 45,000 Required purchases 59,250 75,000 49,350 183,600 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 26,925 26,925 April purchases 29625 29,625 59250 May purchases 37500 37,500 75000 June purchases 24675 24675 total disbursements 56,550 67125 62175 185,850 Accounts payable june 30 = 24,675 4) Cash budget April May June Quarter Beginning cash balance 8,400 4,350 4,625 8,400 Add Cash collectiosn 68600 78000 95000 241600 total cas h available 77,000 82,350 99,625 250,000 less cash disbursements for inventory 56,550 67125 62175 185,850 for expenses 16700 17600 22100 56400 for equipment 2,400 0 0 2,400 total cash disbursements 75,650 84725 84275 244,650 Excess(Deficiency)of cash 1,350 -2,375 15,350 5,350 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 4,350 4,625 5,120 5,120 interest = 3000*1%*3= 90 7000*1%*2= 140 230 5) income statement Sales 260000 cost of goods sold Beginning inventor 45,000 Add purchases 183,600 goods available for sale 228,600 ending inventory 33,600 195,000 Gross margin 65,000 Selling and administrative expense commissions 31200 rent 9600 Depreciation (927*3) 2781 other expenses 15600 59181 net operating 5,819 interest expense 230 net income 5,589 Balance sheet Assets current assets Cash 5,120 Accounts receivable 42,000 inventory 33,600 total current assets 80,720 Building And equipment ,net (123600+2400-2781) 123219 total Assets 203,939 liabilities And stockholder 's Equity Accounts payable 24,675 total current assets 24,675 Stockholder's Equity Capital stock 150,000 Retained earnings(23,675+5589) 29264 179,264 total liabilites & stockholders Equity 203,939

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