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

The following data relate to the operations of Shilow Company, a
wholesale distributor of consumer goods:
Current assets as of March 31:
Cash $ 9,200
Accounts receivable $ 26,800
Inventory $ 49,800
Building and equipment, net $ 104,400
Accounts payable $ 29,925
Common stock $ 150,000
Retained earnings $ 10,275
The gross margin is 25% of sales.
Actual and budgeted sales data: March (actual) $ 67,000
April $ 83,000
May $ 88,000
June $ 113,000
July $ 64,000
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, $4,000 per month;
other expenses (excluding depreciation), 6% of sales.
Assume that these expenses are paid monthly. Depreciation is
$783 per month (includes depreciation on new assets).
Equipment costing $3,200 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: 1. Complete the following
schedule:
Complete the following
schedule:

Schedule of
Expected Cash Collections

April
May
June
Quarter

Cash
sales
$49,800

Credit
sales
26,800

Total collections
$76,600

$0

$0

$0

2. Complete the following:
Complete the
following:

Merchandise Purchases Budget

April

May

June

Quarter

Budgeted cost of goods sold
$62,250
$66,000

Add desired ending merchandise
inventory
52,800

Total needs
115,050
66,000
0
0

Less beginning merchandise
inventory
49,800

Required purchases
$65,250
$66,000
$0
$0

Budgeted cost of goods sold for
April = $83,000 sales × 75% = $62,250.

Add desired ending inventory for
April = $66,000 × 80% = $52,800.

Schedule of Expected Cash Disbursements—Merchandise Purchases

April

May

June

Quarter

March purchases
$29,925

$29,925

April purchases
32,625
32,625

65,250

May purchases

June purchases

Total disbursements
$62,550
$32,625
$0
$95,175

3. Complete the following cash budget:
Complete the following
cash budget: (Cash deficiency, repayments and interest should be
indicated by a minus sign.)

Shilow Company

Cash
Budget

April
May
June
Quarter

Beginning cash
balance
$9,200

Add
collections from customers
76,600

Total cash
available
85,800
0
0
0

Less cash
disbursements:

For
inventory
62,550

For
expenses
18,940

For
equipment
3,200

Total cash
disbursements
84,690
0
0
0

Excess
(deficiency) of cash available over disbursements
1,110
0
0
0

Financing:

Borrowings

Repayments

Interest

Total
financing
0
0
0
0

Ending cash balance
$1,110

$0

$0

$0

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