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:

The gross margin is 25% of sales.

Actual and budgeted sales data:

  

  

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, $3,900 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $801 per month (includes depreciation on new assets).

Equipment costing $3,100 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.

5. Prepare a balance sheet as of June 30.

Current assets as of March 31: Cash $ 9,100 Accounts receivable $ 26,400 Inventory $ 49,200 Building and equipment, net $ 106,800 Accounts payable $ 29,550 Capital stock $ 150,000 Retained earnings $ 11,950

Explanation / Answer

Working Notes Shilow Company Sales & Collection Budget Shilow Company Months March April May June July Balance Sheet as at 31 March Sales 66000 82000 87000 112000 63000 Cash 9100 Accounts receivable 26400 Cash Sales (60%) 39600 49200 52200 67200 37800 Inventory 49200 Credit Sales (40%) 26400 32800 34800 44800 25200 Building and equipment, net 106800 Total 191500 Collections: Accounts payable 29550 Cash Sales 39600 49200 52200 67200 37800 Capital stock 150000 In the Following Month-Credit Sales 26400 32800 34800 44800 Retained earnings 11950 Total Collections 75600 85000 102000 82600 Total 191500 Shilow Company Merchandise Purchase Budget Months March April May June July Cost of Goods Sold 49500 61500 65250 84000 47250 Add: Closing Inventory 52200 67200 37800 Total Need 113700 132450 121800 Less: Opening Inventory 49200 52200 67200 Purchases 64500 80250 54600 In The Month(50%) 32250 40125 27300 In The Following Month(50%) 29550 32250 40125 Total Cash Disbursement 61800 72375 67425 Shilow Company Cash Budget Months March April May June July Beginning Cash 9100 4140 4205 Add: Collections 75600 85000 102000 Total Cash Available 84700 89140 106205 Less: Cash Payments: Payment to Supplier 61800 72375 67425 Sales Commission(12% of Sales) 9840 10440 13440 Other Exp(6% of Sales) 4920 5220 6720 Rent 3900 3900 3900 Equipment 3100 Total Cash Disbursements 83560 91935 91485 Increase/Decrease in Cash 1140 -2795 14720 Financing: Borrowings 3000 7000 0 Repayments 0 0 -10000 Interest on Loan 0 0 -230 Total Financing 3000 7000 -10230 Closing Cash 4140 4205 4490 Budgeted Income Statement for the period ending on June 30 Particulars Amt Sales 281000 Less: COGS 210750 Less: Sales commission 33720 Contribution Margin 36530 Less: Other Costs Other Ex 16860 Rent 11700 Depreciation 2403 Interest on Borrowings 230 Net Contribution 5337 Transfer to Reserves 5337 Balance Sheet as at June 30 (Shilow Company) Assets Cash 4490 (Closing Cash Balance) Account Recievables 44800 (June Month Recievable) Inventory 37800 (Closing Inventory) Property & Equipment Net 107497 (Open+Purc-Dep) Total Assets 194587 Liabilities & Stockholder's Equity Account Payable 27300 (June Month Purchas*50%) Common Stock 150000 Same Retained Earnings 17287 (Open+during the Year) Total 194587

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