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 $ 8,000 $ 20,000 S 36,000 S 120,000 21,750 $ 150,000 12.250 Cash Accounts receivable Inventory Building and equipment, net Accounts payable Capital stock Retained earnings a. The gross margin is 25% of sales. b. Actual and budgeted sales data: March (actual) April May June July $50,000 $60,000 72,000 $90,000 $48,000 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 Each month's ending inventory should equal 80% of the following month's budgeted cost of goods sold. d. 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, $2,500 per month, other expenses g. Equipment costing $1,500 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 $900 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

Explanation / Answer

1 Shilow Company Schedule of expected cash collection April May June Quarter Sales $60,000 $72,000 $90,000 $222,000 Cash Sales $36,000 $43,200 $54,000 $133,200 Credit Sales $20,000 $24,000 $28,800 $72,800 Total Collection $56,000 $67,200 $82,800 $206,000 2 Shilow Company Merchandise Purchase Budget April May June Qurter Budgeted cost of goods sold $45,000 $54,000 $67,500 $166,500 add: desired ending inventory $43,200 $54,000 $28,800 Total needs $88,200 $108,000 $96,300 $292,500 Less: beginning inventory $36,000 $43,200 $54,000 Required purchases $52,200 $64,800 $42,300 $159,300 Shilow Company Schefule of expected cash disbursement-Merchandise purchase April May June Qurter March Purchase $21,750 $21,750 April Purchase $26,100 $26,100 $52,200 May Purchase $32,400 $32,400 $64,800 June Purchase $21,150.0 $21,150 Total disbursement $47,850 $58,500 $53,550 $159,900 3 Shilow Company CASH BUDGET April May June Qurter Beginning cash balance $8,000 $4,350 $4,590 $16,940 Add Cash Collection $56,000 $67,200 $82,800 $206,000 Total Cash available $64,000 $71,550 $87,390 $222,940 Less Cash disbursement $0 For inventory $47,850 $58,500 $53,550 $159,900 (2500+18% 0f sales) For expense $13,300 $15,460 $18,700 $47,460 for equipment $1,500 $0 $0 $1,500 Total Cash disbursement $62,650 $73,960 $72,250 $208,860 Excess(defficiency ) of cash $1,350 ($2,410) $15,140 $14,080 FINANCING $0 Borrowing $3,000 $7,000 $0 $10,000 Repayment $10,000 $10,000 Interest $130 $130 Ending balance $4,350 $4,590 $5,010 $13,950 4 Shilow Company INCOME STATEMENT For the quarter ended June 30 Sales $222,000 Cost of goods sold $166,500 Gross Profit $55,500 Selling and administrative expenses $47,460 Earning before interest & taxes(EBIT) $8,040 Interest expense $130 Earning before taxes(EBT) $7,910

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