The following data relate to the operations of Shilow Company, a wholesale distributor of consumer goods: Current assets as of March 31:
The following data relate to the operations of Shilow Company, a wholesale distributor of consumer goods:
Current assets as of March 31:
Cash $ 7,000
Accounts receivable $ 18,000
Inventory $ 36,600
Building and equipment, net $ 121,200
Accounts payable $ 21,675
Common stock $ 150,000
Retained earnings $ 11,125
a. The gross margin is 25% of sales.
b. Actual and budgeted sales data:
March (actual) $ 45,000
April $ 61,000
May $ 66,000
June $ 91,000
July $ 42,000
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, $1,800 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $909 per month (includes depreciation on new assets).
g. Equipment costing $1,000 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.
Required:
Using the preceding data:
1. Schedule of Expected cash collections Collections?
April May June Quarter
Cash Sales $ 36,000 ? ? ?
Credit Sales $ 18,000 ? ? ?
Total Collections $ 54,000 ? ? ?
2. Merchandise purchases budget and the schedule of expected cash disbursements for merchandise purchases.
Merchant Purchases Budget
April May June Quarter
Budget cost of good sold $ 45,750 $ 49,500 ? ?
Add ending merchandise inventory 39,600 ? ? ?
Total needs 85,350 – – –
Less beginning merchandise inventory 36,600 ? ? ?
Required purchases 48,750 – – –
Budget cost of goods sold for April = $61,000 sales x 75% = $45,750
Add desired ending inventory for April = $49,500 x 80% = $39,600
3. The cash budget
April May June Quarter
Beginning cash balance 7,000 ? ? ?
Add collections from customers 54,600 ? ? ?
Total cash available 61,600
Less cash disbursements:
For inventory 46,050 ? ? ?
For expenses 12,780 ? ? ?
For equipment 1,000 ? ? ?
Total cash disbursements 59,830
Excess (deficiency) of cash-
available over disbursements 1,770
Financing:
Borrowings ? ? ? ?
Repayments ? ? ? ?
Interest ? ? ? ?
Total Financing ? ? ? ?
Ending cash balance
4. What is the absorption costing income statement for the quarter ended June 30?
5. A balance sheet as of June 30?
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