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 Accounts receivable Inventory Building and equipment, net Accounts payable Capital stock Retained earnings $ 8,600 S 24,400 S 46,200 S 118,800 S 27,675 S 150,000 $ 20,325 a. The gross margin is 25% of sales. b. Actual and budgeted sales data: March (actual) April May June July $ 61,000 $ 77,000 $ 82,000 $107,000 $ 58,000 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 monthly. Depreciation is $891 per month (includes depreciation on new assets). 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 f. Monthly expenses are as follows: commissions, 12% of sales; rent, $3,400 per month, other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid g. Equipment costing $2,600 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 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

Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you. 1. Sales budget, including a schedule of expected cash collections. April May Jun Quarter Jul Total Budgeted Sales 77000 82000 107000 266000 58000 Collection Schedule: Same Month 60% Accounts Receivable Next Month 40% Accounts Receivable-Last Year 24400 24400 April 46200 30800 77000 May 49200 32800 82000 Jun 64200 64200 42800 0 Total Estimated Collection 70600 80000 97000 247600 2. Merchandise Purchase April May Jun Quarter Jul Budgeted Cost of Goods Sold 75% of Sale 57750 61500 80250 199500 43500 add: desired ending inventory 80% of Following 49200 64200 34800 34800 15000 Total Needs 106950 125700 115050 234300 58500 Less: Beginning invenory 46200 49200 64200 46200 34800 Required Purchase 60750 76500 50850 188100 23700 Schedule for Payment: Accounts Payable Same Month 50% Next Month 50% Accounts Payable-Last Year 27675 27675 April 30375 30375 60750 May 38250 38250 76500 Jun 25425 25425 25425 Total Estimated Payment 58050 68625 63675 190350 3. Cash Budget April May Jun Quarter Beginning Cash Balance 8600 4290 4505 8600 Add: Collection from Customers 70600 80000 97000 247600 0 Total Cash Available 79200 84290 101505 256200 Less: Cash disbursment for -Purchase of Inventory 58050 68625 63675 190350 -Expense Working below 17260 18160 22660 58080 - Equipment 2600 2600 0 Total Cash Disbursment 77910 86785 86335 251030 Excess/(Deficiency) 1290 -2495 15170 5170 Financing: Borrowing 3000 7000 10000 Repayments -10000 -10000 Interest 10000*1%*3 -300 -300 Total Financing 3000 7000 -10300 -300 Ending Cash Balance 4290 4505 4870 4870 Expense Working: Commission 12% of Sale 9240 9840 12840 31920 Rent 3400 3400 3400 10200 Other Expense 6% of Sale 4620 4920 6420 15960 Depreciation 891 891 891 2673 Total Expense 18151 19051 23551 60753 Less: Non Cash Expense Dep 891 891 891 2673 Payment for Expense 17260 18160 22660 58080 4. Absorption Costing Income Statement Sale 266000 Less: Cost of Goods Sold Cost of Merchandise 75% 199500 Gross Margin 66500 Less: Selling and Administrative Expense Commission 31920 Rent 10200 Other Expense 15960 Depreciation 2673 60753 Operating Income 5747 Less: Interest 300 Net Income 5447 5. Balance Sheet Curretn Assets: Cash 4870 Accounts Receivable 42800 Inventory 34800 Total Current Assets 82470 Building and Equipment, Net 118800+2600-2673 118727 Total Assets 201197 Liabilities and Stockholder Equity Accounts Payable 25425 Stockholder Equity: Capital Stock 150000 Retained Earning 20325+5447 25772 Total Liability and Stockholder Equity 201197

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