The following data relate to the operations of Shilow Company, a wholesale distr
ID: 2530927 • Letter: T
Question
The following data relate to the operations of Shilow Company, a wholesale distributor of consumer goods:
Current assets as of March 31:
Cash
$
8,900
Accounts receivable
$
25,600
Inventory
$
48,000
Building and equipment, net
$
111,600
Accounts payable
$
28,800
Common stock
$
150,000
Retained earnings
$
15,300
The gross margin is 25% of sales.
Actual and budgeted sales data:
March (actual)
$
64,000
April
$
80,000
May
$
85,000
June
$
110,000
July
$
61,000
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, $3,700 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $837 per month (includes depreciation on new assets).
Equipment costing $2,900 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:
2. Complete the following:
3. Complete the following cash budget:
4. Prepare an absorption costing income statement for the quarter ended June 30.
5. Prepare a balance sheet as of June 30.
Current assets as of March 31:
Cash
$
8,900
Accounts receivable
$
25,600
Inventory
$
48,000
Building and equipment, net
$
111,600
Accounts payable
$
28,800
Common stock
$
150,000
Retained earnings
$
15,300
Explanation / Answer
Cash Budget April May June Quarter Begining cash balace 8,900 4,200 4,295 8,900 Add : cash collection 73,600 83,000 100,000 256,600 Total cash available 82,500 87,200 104,295 265,500 Less: cash disbursement - For inventory 60,300 70,875 65,925 197,100 for expense 18,100 19,000 23,500 60,600 for equipment 2,900 - - 2,900 total cash didbursement 81,300 89,875 89,425 260,600 Excess/(deficiency) of cash 1,200 - 2,675 14,870 4,900 Financing (see working) - Borrowing 3,000 7,000 - 10,000 Repayment - - - 10,000 - 10,000 Interest - - 30 - 100 - 130 Total financing 3,000 6,970 - 10,100 - 130 Ending cash balance 4,200 4,295 4,770 4,770 Working for Borrowing/Repayment April May June Minimum balance required 4,000 4,000 4,000 Excess/(deficiency) of cash 1,200 -2,675 14,870 Borrow/(Repay) 2,800 6,675 -10,870 Borrow/(Repay) : in increment of $1000 3,000 7,000 -10,000 Working for Interest April May June Borrowed 3,000 7,000 - Repaid - - - 10,000 Interest - 30 100 (3000*.01) (3000+7000)*1% Income Statement $ $ SALES 275,000 COGS BEGINING INVENTORY 48,000 PURCHASES 194,850 GOODS AVILAVBLE FOR SALES 242,850 ENDING INVENTORY 36,600 206,250 GROSS MARGIN 68,750 SELLING AND ADMINISTRATIVE COMMISSION 33,000 RENT 11,100 DEPRECIATION 2,511 OTHER EXPENSES 16,500 63,111 NET OPERATING INCOME 5,639 INTEREST EXPENSE (FROM CASH BUDGET) 130 NET INCOME 5,509 Balance Sheet $ $ Assets Current assets cash (from cash budget) 4,770 Account receivable 44,000 inventory 36,600 Total current assets 85,370 Building & equipmentnet 111,989 Total asset 197,359 Liabilities & Equity Accounts Payable 26,550 stock holders equity common stock 150,000 Retained earning (15300+5509) 20,809 170,809 Total liabilities & stock holders equity 197,359
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