The following data relate to the operations of Shilow Company, awholesale distributor of consumer goods:
| | |
| Current assets as of March 31: |
| Cash | $ | 8,000 |
| Accounts receivable | $ | 22,000 |
| Inventory | $ | 42,600 |
| Building and equipment, net | $ | 130,800 |
| Accounts payable | $ | 25,425 |
| Common stock | $ | 150,000 |
| Retained earnings | $ | 27,975 |
|
The gross margin is 25% of sales.
Actual and budgeted sales data:
| | |
| March (actual) | $ | 55,000 |
| April | $ | 71,000 |
| May | $ | 76,000 |
| June | $ | 101,000 |
| July | $ | 52,000 |
|
Sales are 60% for cash and 40% on credit. Credit sales arecollected in the month following sale. The accounts receivable atMarch 31 are a result of March credit sales.
Each month’s ending inventory should equal 80% of the followingmonth’s budgeted cost of goods sold.
One-half of a month’s inventory purchases is paid for in themonth of purchase; the other half is paid for in the followingmonth. The accounts payable at March 31 are the result of Marchpurchases of inventory.
Monthly expenses are as follows: commissions, 12% of sales;rent, $2,800 per month; other expenses (excluding depreciation), 6%of sales. Assume that these expenses are paid monthly. Depreciationis $981 per month (includes depreciation on new assets).
Equipment costing $2,000 will be purchased for cash inApril.
Management would like to maintain a minimum cash balance of atleast $4,000 at the end of each month. The company has an agreementwith a local bank that allows the company to borrow in incrementsof $1,000 at the beginning of each month, up to a total loanbalance of $20,000. The interest rate on these loans is 1% permonth and for simplicity we will assume that interest is notcompounded. The company would, as far as it is able, repay the loanplus accumulated interest at the end of the quarter.
Required:
Using the preceding data:
1. Complete the schedule of expected cash collections.
2. Complete the merchandise purchases budget and the schedule ofexpected cash disbursements for merchandise purchases.
3. Complete the cash budget.
4. Prepare an absorption costing income statement for thequarter ended June 30.
5. Prepare a balance sheet as of June 30.
