The following data relate to the operations of Shilow Company, a wholesale distributor of con-sumer goods: Current assets as of March 31: Cash .............................. $8,000 Accounts receivable................. $20,000 Inventory........................... $36,000 Buildings and equipment, net...........$120,000 Accounts payable ..................... $21,750 Capital stock..........................$150,000 Retained earnings..................... $12,250 The gross margin is 25% of sales. b. Actual and budgeted sales data: March (actual) ...................$50,000 April . . . . . . . . . . . . . . .    .$60,000 May ..................................$72,000 June..................................$90,000 July ..................................$48,000 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, $2,500 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $900 per month (includes depreciation on new assets). Equipment costing $1,500 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. Complete the following schedule: Schedule of Expected Cash Collections                                  April             May        June      Quarter Cash sales ............$36,000            -------         --------     --------- Credit sales............ 20,000            --------        --------     --------- Total collections........$56,000       --------        --------     ---------   Complete the following:   Merchandise Purchases Budget                                                              April            May     June      Quarter Budgeted cost of goods sold ...........$45,000*     $54,000 Add desired ending inventory.......... 43,200†          ------     ------     -------  Total needs............................................. 88,200           ------   --------     -------- Less beginning inventory................... 36,000          -------     -------     -------- Required purchases ............................$52,200          -------    --------     -------  *For April sales: $60,000 sales × 75% cost ratio = $45,000.†$54,000 × 80% = $43,200                                                   Schedule of Expected Cash Disbursements—Merchandise Purchases                                                       April             May          June         Quarter March purchases...................... $21,750         --------       --------         $21,750 April purchases....................... 26,100          $26,100         --------           52,200 May purchases........................   -------            -------         --------          ------- June purchases.......................    ------             -------          --------         ------ Total disbursements ...............$47,850          --------          -------        -------   3,Complete the following cash budget:   Cash Budget                                                         April          May        June           Quarter Beginning cash balance................$8,000       -------      -------         -------- Add cash collections...................56,000         -------      --------         -------- Total cash available ...................64,000          --------      --------       -------- Less cash disbursements:      For inventory....................... 47,850          -------           ------         ------      For expenses....................... 13,300         --------           -----          ------      For equipment ...................... 1,500         --------         -------        ------- Total cash disbursements...............62,650    ------          ------          ------- Excess (deficiency) of cash.............. 1,350  ---------           ---------             -------- FinancingEtc.   Prepare an absorption costing income statement, similar to the one shown in Schedule 9 in the chapter, for the quarter ended June 30. Prepare a balance sheet as of June 30.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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The following data relate to the operations of Shilow Company, a wholesale distributor of con-sumer goods:

Current assets as of March 31:

Cash .............................. $8,000

Accounts receivable................. $20,000

Inventory........................... $36,000

Buildings and equipment, net...........$120,000

Accounts payable ..................... $21,750

Capital stock..........................$150,000

Retained earnings..................... $12,250

  1. The gross margin is 25% of sales. b. Actual and budgeted sales data:

March (actual) ...................$50,000

April . . . . . . . . . . . . . . .    .$60,000

May ..................................$72,000

June..................................$90,000

July ..................................$48,000

  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, $2,500 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $900 per month (includes depreciation on new assets).
  5. Equipment costing $1,500 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.
  7. Complete the following schedule:

Schedule of Expected Cash Collections

                                 April             May        June      Quarter

Cash sales ............$36,000            -------         --------     ---------

Credit sales............ 20,000            --------        --------     ---------

Total collections........$56,000       --------        --------     ---------

 

  1. Complete the following:

 

Merchandise Purchases Budget

                                                             April            May     June      Quarter

Budgeted cost of goods sold ...........$45,000*     $54,000

Add desired ending inventory.......... 43,200†          ------     ------     -------

 Total needs............................................. 88,200           ------   --------     --------

Less beginning inventory................... 36,000          -------     -------     --------

Required purchases ............................$52,200          -------    --------     -------

 *For April sales: $60,000 sales × 75% cost ratio = $45,000.†$54,000 × 80% = $43,200

 

                                                Schedule of Expected Cash Disbursements—Merchandise Purchases

                                                      April             May          June         Quarter

March purchases...................... $21,750         --------       --------         $21,750

April purchases....................... 26,100          $26,100         --------           52,200

May purchases........................   -------            -------         --------          -------

June purchases.......................    ------             -------          --------         ------

Total disbursements ...............$47,850          --------          -------        -------

 

3,Complete the following cash budget:

 

Cash Budget  

                                                      April          May        June           Quarter

Beginning cash balance................$8,000       -------      -------         --------

Add cash collections...................56,000         -------      --------         --------

Total cash available ...................64,000          --------      --------       --------

Less cash disbursements:

     For inventory....................... 47,850          -------           ------         ------

     For expenses....................... 13,300         --------           -----          ------

     For equipment ...................... 1,500         --------         -------        -------

Total cash disbursements...............62,650    ------          ------          -------

Excess (deficiency) of cash.............. 1,350  ---------           ---------             --------

FinancingEtc.

 

  1. Prepare an absorption costing income statement, similar to the one shown in Schedule 9 in the chapter, for the quarter ended June 30.
  2. Prepare a balance sheet as of June 30.

 

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