The following data relate to the operations of Shilow Company, a wholesale distributor of consumer goods: Current assets as of March 31: Cash Accounts receivable Inventory Buildings and equipment, net Accounts payable Common shares Retained earnings a. The gross margin is 25% of sales. b. Actual and budgeted sales data are as follows: March (actual) April May June $50,000 $60,000 $72,000 $ 8,000 20,000 36,000 120,000 21,750 150,000 12,250 July $90,000 $48,000 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 the 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 one-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, $2,500; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $900 per month and includes depreciation on new assets. g. Equipment will be acquired for cash: $1,500 in April. h. Management would like to maintain a minimum cash balance of $4,000 at the end of each month. The company has an agreement with a local bank that allows the company to borrow as needed 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.
The following data relate to the operations of Shilow Company, a wholesale distributor of consumer goods: Current assets as of March 31: Cash Accounts receivable Inventory Buildings and equipment, net Accounts payable Common shares Retained earnings a. The gross margin is 25% of sales. b. Actual and budgeted sales data are as follows: March (actual) April May June $50,000 $60,000 $72,000 $ 8,000 20,000 36,000 120,000 21,750 150,000 12,250 July $90,000 $48,000 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 the 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 one-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, $2,500; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $900 per month and includes depreciation on new assets. g. Equipment will be acquired for cash: $1,500 in April. h. Management would like to maintain a minimum cash balance of $4,000 at the end of each month. The company has an agreement with a local bank that allows the company to borrow as needed 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.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:The following data relate to the operations of Shilow Company, a wholesale distributor of consumer goods:
Current assets as of March 31:
Cash
Accounts receivable
Inventory
Buildings and equipment, net
Accounts payable
Common shares
Retained earnings
a. The gross margin is 25% of sales.
b. Actual and budgeted sales data are as follows:
March (actual)
April
May
June
$50,000
$60,000
$72,000
$ 8,000
20,000
36,000
120,000
21,750
150,000
12,250
July
$90,000
$48,000
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 the 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 one-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, $2,500; other expenses (excluding depreciation), 6% of sales.
Assume that these expenses are paid monthly. Depreciation is $900 per month and includes depreciation on new assets.
g. Equipment will be acquired for cash: $1,500 in April.
h. Management would like to maintain a minimum cash balance of $4,000 at the end of each month. The company has an agreement
with a local bank that allows the company to borrow as needed 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.
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