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 $ 9,200

Accounts receivable $ 26,800

Inventory $ 49,800

Building and equipment, net $ 104,400

Accounts payable $ 29,925

Common stock $ 150,000

Retained earnings $ 10,275

The gross margin is 25% of sales.

Actual and budgeted sales data: March (actual) $ 67,000

April $ 83,000

May $ 88,000

June $ 113,000

July $ 64,000

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, $4,000 per month;

other expenses (excluding depreciation), 6% of sales.

Assume that these expenses are paid monthly. Depreciation is $783 per month (includes depreciation on new assets).

Equipment costing $3,200 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:

Complete the following schedule:

2. Complete the following:

Complete the following:

3. Complete the following cash budget:

Complete the following cash budget: (Cash deficiency, repayments and interest should be indicated by a minus sign.)

4. Prepare an absorption costing income statement for the quarter ended June 30.

Prepare an absorption costing income statement for the quarter ended June 30.

5. Prepare a balance sheet as of June 30.

repare a balance sheet as of June 30.

Explanation / Answer

Required Budgets are as prepared below:

Shillow Company Schedule of expected Cash collections For the quarter ended June 30 Month Particulars April May June Total Sales 83,000 88,000 1,13,000 2,84,000 64,000 Beginning Accounts Receivable March Credit sales (67,000*.4) 26,800 26,800 April Cash Sales 49,800 49,800 April Credit Sales 33,200 33,200 May Cash sales 52,800 52,800 May Credit Sales 35,200 35,200 June Cash sales 67,800 67,800 June Credit Sales 0 Total collections 76,600 86,000 1,03,000 2,65,600 Account receivable for June sale 45,200 Shillow Company Merchandise Purchase Budget For the quarter ended June 30 Month Particulars April May June Total Cost of goods sold 62,250 66,000 84,750 2,13,000 48,000 Add: Desired Ending merchandise inventory 52,800 67,800 38,400 38,400 Total needs 1,15,050 1,33,800 1,23,150 2,51,400 Less: beginning merchandise inventory 49,800 52,800 67,800 49,800 Required purchase 65,250 81,000 55,350 2,01,600 Shillow Company Schedule of expected Cash payments For the quarter ended June 30 Month Particulars April May June Total Beginning Accounts Payable (a) $29,925 $29,925 April Purchases (b) $32,625 $32,625 $65,250 May Purchases (c ) $40,500 $40,500 $81,000 June Purchases (d) $27,675 $27,675 Total payments (a+b+c+d) $62,550 $73,125 $68,175 $2,03,850 Shillow Company Cash Budget For the quarter ended June 30 Month Particulars April May June Total Beginning Cash balance 9,200 4,110 4,145 9,200 Add: Collection from customers $76,600 $86,000 $1,03,000 2,65,600 cash available for use $85,800 $90,110 $1,07,145 $2,74,800 Less: cash Disbursements Merchandise purchase $62,550 $73,125 $68,175 2,03,850 Commissions (12% of sales) 9,960 10,560 13,560 34,080 Rent 4,000 4,000 4,000 12,000 Other exp (6% of sales) 4,980 5,280 6,780 17,040 Equipment purchase 3,200 0 0 3,200 Total disbusrement 84,690 92,965 92,515 2,70,170 Cash surplus/Deficit 1,110 -2,855 14,630 4,630 Financing    Borrowing 3,000 7,000 10,000    Repayment -10,000 -10,000    Interest -130 -130 Net cash from Financing 3,000 7,000 10,130 -130 Budgeted ending cash balance 4,110 4,145 4,500 4,500 Shillow Company Budgeted Income Statement For the quarter ended June 30 Particulars Amount ($) Amount ($) Sales 2,84,000 Less: Cost of goods sold (75% of sales) 2,13,000 Gross margin 71,000 Less: Selling and administartive exp Depreciation (783*3) 2,349 Commissions (12% of sales) 34,080 Rent 12,000 Other exp (6% of sales) 17,040 65,469 Net operating Income 5,531 Interest expense 130 Net Income 5,401 Shillow Company Budgeted balance Sheet Jun-30 Assets Cash 4,500 Accounts Receivable 45,200 Inventory 38,400 Property and equipment Net 1,05,251 Total assets 1,93,351 Liabilities and Stockholders' Equity Accounts Payable purchases 27,675 Common Stock 1,50,000 Retained earnings (10,275+5,391) 15,676 Total liabilities and stockholders' equity 1,93,351

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