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 Cash Accounts receivable Building and equipment, net Accounts payable Capital stock Retained earnings $ 7,900 S 21,600 S 42,000 S132,000 S 25,050 150,000 S 28,450 The gross margin is 25% of sales b. Actual and budgeted sales data: March (actual) April May June July S 54,000 S 70,000 S 75,000 100,000 S 51,000 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. 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 f Monthly expenses are as follows: commissions. 12% of sales: rent. S2.700 per month other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid g. Equipment costing $1,900 will be purchased for cash in April. Each month's ending inventory should equal 80% of the following month's budgeted cost of goods sold. purchases of inventory monthly. Depreciation is $990 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 S20.000. 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

Merchandise Purchase Budget April May June Quarter Budgeted cost of goods sold (75% of sale) $52,500 $56,250 $75,000 $183,750 Add desired ending inventory $45,000 $60,000 $30,600 $30,600 Total needs $97,500 $116,250 $105,600 $214,350 Less beginning inventory $42,000 $45,000 $60,000 $42,000 Required purchases $55,500 $71,250 $45,600 $172,350 Schedule of Expected Cash Disbursements-Merchandise Purchases April May June Quarter March Purchases $25,050 $25,050 April Purchases $27,750 $27,750 $55,500 May Purchases $35,625 $35,625 $71,250 June Purchases $22,800 $22,800 Total disbursements $52,800 $63,375 $58,425 $174,600 Shilow Company Cash Budget April May June Quarter Beginning Cash balance $7,900 $4,500 $4,895 $7,900 Add: Cash collections $63,600 $73,000 $90,000 $226,600 Total cash available $71,500 $77,500 $94,895 $234,500 Less: Cash disbursements      For inventory $52,800 $63,375 $58,425 $174,600      For expenses $15,300 $16,200 $20,700 $52,200      For Equipment $1,900 $0 $0 $1,900 Total cash disbursements $70,000 $79,575 $79,125 $228,700      Excess (deficiency) of cash $1,500 ($2,075) $15,770 $5,800 Financing:      Borrowings $3,000 $7,000 $10,000      Repayments ($10,000) ($10,000)      Interest* ($230) ($230) Total financing $3,000 $7,000 ($10,230) ($230) Ending cash balance $4,500 $4,925 $5,540 $5,570 *($10,000 x 1% x 2 months) + ($3,000 x 1% x 1 month) Shilow Company Income Statement For the Quarter Ended June 30 Sales $245,000 Cost of Goods Sold:     Beginning Inventory $42,000     Purchases $172,350     Goods available for sale $214,350     Ending inventory $30,600 $183,750     Gross margin $61,250 Selling and administrative expenses:      Commissions $29,400      Rent $8,100      Depreciation $2,970      Other expenses $14,700 $55,170 Net operating income $6,080 Interest Expense $230 Net Income $5,850 Shilow Company Balance Sheet 30-Jun Assets Current Assets:      Cash $5,570      Accounts Receivable $40,000      Inventory $30,600 Total current assets $76,170 Building and equipment-net $130,930 Total assets $207,100 Liabilities and Stockholders' Equity Accounts Payable $22,800 Total liabilities $22,800 Stockholders' equity:      Common Stock $150,000      Retained earnings $28,450      Add: Net Income $5,850      Closing Retained earnings $34,300 $184,300 Total liabilities and stockholders' equity $207,100

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