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 S 8,100 S 22,400 S 43,200 S 129,600 S 25,800 S 150,000 S 27,500 Cash Accounts receivable Inventory Building and equipment, net Accounts payable Common stock Retained earnin a. The gross margin is 25% of sales. b. Actual and budgeted sales data: March (actual) April May June Ju $ 56,000 $ 72,000 $ 77,000 $ 102,000 S 53,000 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 f. Monthly expenses are as follows: commissions, 12% of sales; rent, $2,900 per month other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $972 per month (includes depreciation on new assets). g. Equipment costing $2,100 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 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

Explanation / Answer

1) Shilow company Schedule of Expected cash collections April May June Quarter Cash sales 43200 46200 61200 150600 credit sales 22,400 28800 30800 82,000 total collections 65600 75000 92000 232600 Accounts receivable = 102000*40%= 40800 2) Merchandise purchase budget April May June Quarter Budgeted cost of goods sold 54000 57750 76500 188250 39750 Add Desired ending inventory 46200 61200 31,800 31,800 total needs 100200 118950 108300 220050 less beginning inventory 43,200 46,200 61,200 43,200 Required purchases 57,000 72,750 47,100 176,850 cost of goods sold = 75% of sales ending inventory = 80% of following months budgeted cost of goods sold 3) Schedule of Cash disbursements-Merchandise purhcase April May June Quarter March purchases 25,800 25,800 April purchases 28500 28,500 57000 May purchases 36375 36,375 72750 June purchases 23550 23550 total disbursements 54,300 64875 59925 179,100 Accounts payable june 30 = 23,550 4) Cash budget April May June Quarter Beginning cash balance 8,100 4,440 4,805 8,100 Add Cash collectiosn 65600 75000 92000 232600 total cas h available 73,700 79,440 96,805 240,700 less cash disbursements for inventory 54,300 64875 59925 179,100 for expenses 15860 16760 21260 53880 for equipment 2,100 0 0 2,100 total cash disbursements 72,260 81635 81185 235,080 Excess(Deficiency)of cash 1,440 -2,195 15,620 5,620 Financing: Borrowings 3,000 7,000 0 10,000 Repayments 0 -10,000 -10,000 interest 0 -230 -230 total financing 3,000 7,000 -10230 -230 Ending cash balance 4,440 4,805 5,390 5,390 interest = 3000*1%*3= 90 7000*1%*2= 140 230 5) income statement Sales 251000 cost of goods sold Beginning inventor 43,200 Add purchases 176,850 goods available for sale 220,050 ending inventory 31,800 188,250 Gross margin 62,750 Selling and administrative expense commissions 30120 rent (2900*3) 8700 Depreciation (972*3) 2916 other expenses 15060 56796 net operating 5,954 interest expense 230 net income 5,724 Balance sheet Assets current assets Cash 5,390 Accounts receivable 40,800 inventory 31,800 total current assets 77,990 Building And equipment ,net (123600+1200-2781) (129600+2100-2916) 128784 total Assets 206,774 liabilities And stockholder 's Equity Accounts payable 23,550 total current assets 23,550 Stockholder's Equity Capital stock 150,000 Retained earnings 33,224 183,224 total liabilites & stockholders Equity 206,774

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