The following data relate to the operations of Shilow Company, a wholesale distributor of consumer goods:   Current assets as of March 31:   Cash $ 9,100 Accounts receivable $ 26,400 Inventory $ 49,200 Building and equipment, net $ 106,800 Accounts payable $ 29,550 Common stock $ 150,000 Retained earnings $ 11,950   The gross margin is 25% of sales. Actual and budgeted sales data:   March (actual) $ 66,000 April $ 82,000 May $ 87,000 June $ 112,000 July $ 63,000   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, $3,900 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $801 per month (includes depreciation on new assets). Equipment costing $3,100 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:   1. Complete the schedule of expected cash collections. 2. Complete the merchandise purchases budget and the schedule of expected cash disbursements for merchandise purchases. 3. Complete the cash budget. 4. Prepare an absorption costing income statement for the quarter ended June 30. 5. Prepare a balance sheet as of June 30. 1.     Schedule of Expected Cash Collections   April May June Quarter Cash sales $49,200       Credit sales 26,400       Total collections $75,600       2.     Merchandise Purchases Budget   April May June Quarter Budgeted cost of goods sold $61,500 $65,250     Add desired ending merchandise inventory 52,200       Total needs 113,700       Less beginning merchandise inventory 49,200       Required purchases         Budgeted cost of goods sold for April = $82,000 sales × 75% = $61,500. Add desired ending inventory for April = $65,250 × 80% = $52,200. Schedule of Expected Cash Disbursements—Merchandise Purchases   April May June Quarter March purchases $29,550     $29,550 April purchases 32,250 32,250   64,500 May purchases         June purchases         Total disbursements         3.     Shilow Company Cash Budget   April May June Quarter Beginning cash balance $9,100       Add collections from customers 75,600       Total cash available 84,700       Less cash disbursements:         For inventory 61,800       For expenses 18,660       For equipment 3,100       Total cash disbursements 83,560       Excess (deficiency) of cash available over disbursements 1,140       Financing:         Borrowings         Repayments         Interest         Total financing         Ending cash balance         4. Prepare a balance sheet as of June 30.         Shilow Company Balance Sheet June 30 Assets Current assets:                                   Total current assets           Total assets     Liabilities and Stockholders’ Equity             Stockholders' equity:                             Total liabilities and stockholders’ equity     5. Shilow CompanyBalance SheetJune 30AssetsCurrent assets:                 Total current assets     Total assets  Liabilities and Stockholders’ Equity      Stockho

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Chapter1: Financial Statements And Business Decisions
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The following data relate to the operations of Shilow Company, a wholesale distributor of consumer goods:

 

Current assets as of March 31:  
Cash $ 9,100
Accounts receivable $ 26,400
Inventory $ 49,200
Building and equipment, net $ 106,800
Accounts payable $ 29,550
Common stock $ 150,000
Retained earnings $ 11,950

 

  1. The gross margin is 25% of sales.

  2. Actual and budgeted sales data:

 

March (actual) $ 66,000
April $ 82,000
May $ 87,000
June $ 112,000
July $ 63,000

 

  1. 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.

  2. Each month’s ending inventory should equal 80% of the following month’s budgeted cost of goods sold.

  3. 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.

  4. Monthly expenses are as follows: commissions, 12% of sales; rent, $3,900 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $801 per month (includes depreciation on new assets).

  5. Equipment costing $3,100 will be purchased for cash in April.

  6. 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 schedule of expected cash collections.

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

3. Complete the cash budget.

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

5. Prepare a balance sheet as of June 30.

1.

 
 
Schedule of Expected Cash Collections
  April May June Quarter
Cash sales $49,200      
Credit sales 26,400      
Total collections $75,600      

2.

 
 
Merchandise Purchases Budget
  April May June Quarter
Budgeted cost of goods sold $61,500 $65,250    
Add desired ending merchandise inventory 52,200      
Total needs 113,700      
Less beginning merchandise inventory 49,200      
Required purchases        
Budgeted cost of goods sold for April = $82,000 sales × 75% = $61,500.
Add desired ending inventory for April = $65,250 × 80% = $52,200.
Schedule of Expected Cash Disbursements—Merchandise Purchases
  April May June Quarter
March purchases $29,550     $29,550
April purchases 32,250 32,250   64,500
May purchases        
June purchases        
Total disbursements        

3.

 
 
Shilow Company
Cash Budget
  April May June Quarter
Beginning cash balance $9,100      
Add collections from customers 75,600      
Total cash available 84,700      
Less cash disbursements:        
For inventory 61,800      
For expenses 18,660      
For equipment 3,100      
Total cash disbursements 83,560      
Excess (deficiency) of cash available over disbursements 1,140      
Financing:        
Borrowings        
Repayments        
Interest        
Total financing        
Ending cash balance        

4.

Prepare a balance sheet as of June 30.

 
 
 
 
Shilow Company
Balance Sheet
June 30
Assets
Current assets:    
     
     
     
     
     
Total current assets    
     
Total assets    
Liabilities and Stockholders’ Equity
     
     
Stockholders' equity:    
     
     
     
     
Total liabilities and stockholders’ equity    

5.

Shilow CompanyBalance SheetJune 30AssetsCurrent assets:                 Total current assets     Total assets  Liabilities and Stockholders’ Equity      Stockholders' equity:              Total liabilities and stockholders’ equity  

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