Sales are 60% for cash and 40% on credit. Credit sales are collected in the mont

Question

  

  

  

  

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.

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, $3,000 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $963 per month (includes depreciation on new assets).

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.

  

        file:///Users/KyungWan/Desktop/%202016-04-03%20%201.40.24.png

Complete the following:

file:///Users/KyungWan/Desktop/%202016-04-03%20%201.40.36.png      

       

Complete the following cash budget: (Borrow and repay in increments of $1,000. Cash deficiency, repayments and interest should be indicated by a minus sign.)

file:///Users/KyungWan/Desktop/%202016-04-03%20%201.41.18.png

     

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

        

file:///Users/KyungWan/Desktop/%202016-04-03%20%201.41.40.png   

The following data relate to the operations of Shilow Company, a wholesale distributor of consumer goods:

Explanation / Answer

(1.) Expected cash collection statement for April , May & June

   April May June Total

Cash collection(60%) 73000 *60% 78000*60% 103000 *60%   

=$43800 = $46800 =$61800 $152400

Credit collection (40%) 57000*40% 73000*40% 78000*40%

   = $22800 = $29200 =$31200 $83200

Total   $66600 $76000 $93000

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