The following data relate to the operations of Shilow Company, a wholesale distributor of consumer goods:
Current assets as of March 31: Cash $ 8,600 Accounts receivable $ 24,400 Inventory $ 46,200 Building and equipment, net $ 118,800 Accounts payable $ 27,675 Capital stock $ 150,000 Retained earnings $ 20,325 The gross margin is 25% of sales.
Actual and budgeted sales data:
March (actual) $ 61,000 April $ 77,000 May $ 82,000 June $ 107,000 July $ 58,000 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, $3,400 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $891 per month (includes depreciation on new assets).
Equipment costing $2,600 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.
Required:
Using the data above:
1. Complete the following schedule.
Schedule of Expected Cash Collections
April May June Quarter
Cash sales $46,200 $49,200 $64,200 $159,600
Credit sales 24,400 30,800 32,800 88,000
Total collections $70,600 $80,000 $97,000 $247,600
2. Complete the following:
Merchandise Purchases Budget
April May June Quarter
Budgeted cost of goods sold $57,750 Add desired ending inventory 49,200 Total needs 106,950 0 0 0
Less beginning inventory 46,200 Required purchases $60,750 $0 $0 $0
Schedule of Expected Cash Disbursements—Merchandise Purchases
April May June Quarter
March purchases $27,675 $27,675
April purchases 30,375 30,375 60,750
May purchases June purchases Total disbursements $58,050 $30,375 $0 $88,425
3. Complete the following cash budget: (Borrow and repay in increments of $1,000. Cash deficiency, repayments and interest should be indicated by a minus sign.)
Shilow Company
Cash Budget
April May June Quarter
Beginning cash balance $8,600 Add cash collections 70,600 Total cash available 79,200 0 0 0
Less cash disbursements: For inventory 58,050 For expenses 17,260 For equipment 2,600 Total cash disbursements 77,910 0 0 0
Excess (deficiency) of cash 1,290 0 0 0
Financing: Borrowings Repayments Interest Total financing 0 0 0 0
Ending cash balance $1,290 $0 $0 $0
4. Prepare an absorption costing income statement for the quarter ended June 30.
Shilow Company
Income Statement
For the Quarter Ended June 30
Cost of goods sold: 0 0
0
Selling and administrative expenses: 0
0
0
5. Prepare a balance sheet as of June 30.
Shilow Company
Balance Sheet
June 30
Assets
Current assets: Total current assets 0
Total assets $0
Liabilities and Stockholders’ Equity
Stockholders' equity: 0
Total liabilities and stockholders’ equity $0