60.1K

Verified Solution

Link Copied!

The following data relate to the operations of Shilow Company, a wholesale distributor of consumer goods:

Current assets as of March $31$:

Cash $ $8,100$

Accounts receivable $ $22,400$

Inventory $ $43,200$

Building and equipment, net $ $129,600$

Accounts payable $ $25,800$

Common stock $ $150,000$

Retained earnings $ $27,500$

The gross margin is $25\%$ of sales.

Actual and budgeted sales data:

March $($actual$)$ $ $56,000$

April $ $72,000$

May $ $77,000$

June $ $102,000$

July $ $53,000$

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, $$2,900$ per month; other expenses $($excluding depreciation$),6\%$ of sales. Assume that these expenses are paid monthly. Depreciation is $$972$ per month $($includes depreciation on new assets$).$

Equipment costing $$2,100$ 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.

Required:

Using the preceding data:

Complete the schedule of expected cash collections.

Complete the merchandise purchases budget and the schedule of expected cash disbursements for merchandise purchases.

Complete the cash budget.

Prepare an absorption costing income statement for the quarter ended June $30.$

Prepare a balance sheet as of June $30.$Prepare an absorption costing income statement for the quarter ended June $30.$

Answer & Explanation Solved by verified expert

See Answer