to the operations of Shilow Company, a wholesale distributor of consumer goods:

Question

to the operations of Shilow Company, a wholesale distributor of consumer goods: Current assets as of March 31: Cash $ 7,200 $ 18,800 $37,800 $ 123,600 $22,425 150,000 $ 14,975 Accounts receivable Inventory Building and equipment, net Accounts payable Capital stock Retained eamings a. The gross margin is 25% of sales. b. Actual and budgeted sales data: March (actual) April May June July $47,000 $63,000 $68,000 $93,000 $44,000 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 f. Monthly.expenses are as follows: commissions, 12% of sales, rent, $2,000 per rmonth, other expenses g. Equipment costing $1,200 will be purchased for cash in April. in the following month. The accounts payable at March 31 are the result of March purchases of inventory (excluding depreciation), 6% of 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 Required

Explanation / Answer

Requirement 1 Schedule of expected cash collection. April May June Quarter Cash Sales 37800 40800 55800 134400 Credit sales 18800 25200 27200 71200 Total collections 56600 66000 83000 205600 Requirement 2 Merchandise purchase budget April May June Quarter Budgeted cost of goods sold 47250 51000 69750 168000 Add; Desired ending inventory 40800 55800 26400 26400 Total needs 88050 106800 96150 194400 Less; beginning Inventory 37800 40800 55800 37800 Required purchases 50250 66000 40350 156600 Schedule of expected cash disbursements-merchandise purchase April May June Quarter March Purchases 22425 22425 April Purchases 25125 25125 50250 may Purchases 33000 33000 66000 June Purchases 20175 20175 Total disbursements 47550 58125 53175 158850 Shilow Company. Absorption costing Income statement For the quarter ended June Sales 224000 Cost of goods sold 168000 Gross margin 56000 Operating expenses Selling and administrative expenses 63000 68000 93000 Commissions 26880 7560 8160 11160 Rent 6000 3780 4080 5580 Other expenses 13440 2000 2000 2000 Depreciation 2781 13340 14240 18740 Total expenses 49101 Operating profit 6899 Less : interest 197 Net Income 6702 Shilow Company Cash Budget April May June Quarter Beginning Balance 7200 4010 4045 7200 Add ; Collections 56600 66000 83000 205600 Total cash available 63800 70010 87045 212800 Less; Cash disbursements For Inventory 47550 58125 53175 158850 For expenses 13340 14240 18740 46320 For equipment 1200 1200 Total cash disbursements 62090 72365 71915 206370 Excess/(deficiency) 1710 -2355 15130 6430 Financing Borrowings 2300 6400 8700 Repayments 8700 -8700 Interest 197 -197 Total Financing Ending cash balance 4010 4045 6233 6233 Shilow Company Balance sheet Jun-30 Asset Current asset Cash 6233 Accounts receivable 37200 Inventory 26400 Total current asset 69833 Non-current asset Building and equipment 122019 Total Asset 191852 Liabilities & stockholder's equity Liabilities Current Liabilities Accounts Payable 20175 Stockholder's equity Common stock 150000 Retained earnings 21677 Total liabilities & stockholder's equity 191852

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