The following data relate to the operations of Shilow Company, a wholesale distributor of consumer goods: Curren…
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Question “The following data relate to the operations of Shilow Company, a wholesale distributor of consumer goods: Curren…”
The following data relate to the operations of Shilow Company, a
wholesale distributor of consumer goods:
Current assets as of March 31: | ||
Cash | $ | 8,000 |
Accounts receivable | $ | 20,000 |
Inventory | $ | 36,000 |
Building and equipment, net | $ | 120,000 |
Accounts payable | $ | 21,750 |
Common stock | $ | 150,000 |
Retained earnings | $ | 12,250 |
The gross margin is 25% of sales.
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.
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.
Answer
ANSWER :-
(1)
Below is a list of the expected collections
| ||||
April | May | June | Quarter | |
Cash Sales | 36,000 (60,000*60%) | 43,200 (72,000*60%) | 54,000 (90,000*60%) | 133,200 ( |
Credit Sales | 20,000 (Given) | 24,000 (60,000*40%) | 28,800 (72,000*40%) | 72,800 |
Total Collections |
$56,000 |
$67,200 |
$82,800 |
$206,000 |
(2)
Here is the budget for merchandise purchases:
| ||||
April | May | June | Quarter | |
Budgeted cost of goods sold | 45,000 (60,000*75%) | 54,000 (72,000*75%) | 67,500 (90,000*75%) | 166,500 |
Add desired ending inventory | 43,200 (54,000*80%) | 54,000 (67,500*80%) | 28,800 (48,000*75%*80%) | 28,800 |
Total Needs | 88,200 | 108,000 | 96,300 | 195,300 |
We have less inventory opening | 36,000 (Given) | 43,200 (54,000*80%) | 54,000 (67,500*80%) | 36,000 |
Required Purchases | $52,200 | $64,800 | $42,300 | $159,300 |
(3)
The schedule of expected cash disbursements-merchandise purchases is given as follows:
April | May | June | Quarter | |
March Purchases | 21,750 (Given) | 0 | 0 | 21,750 |
April Purchases | 26,100 (52,200*50%) | 26,100 (52,200*50%) | 0 | 52,200 |
May Purchases | 0 | 32,400 (64,800*50%) | 32,400 (64,800*50%) | 64,800 |
June Purchases | 0 | 0 | 21,150 (42,300*50%) | 21,150 |
Total Disbursements | $47,850 | $58,500 | $53,550 | $159,900 |
(4)
The schedule of expected cash disbursements-selling and administrative expenses is given below:
Schedule of Expected Cash Disbursements – Selling and | ||||
April | May | June | Quarter | |
Commissions | 7,200 (60,000*12%) | 8,640 (72,000*12%) | 10,800 (90,000*12%) | 26,640 |
Rent | 2,500 | 2,500 | 2,500 | 7,500 |
Other expenses | 3,600 (60,000*6%) | 4,320 (72,000*6%) | 5,400 (90,000*6%) | 13,320 |
Total Disbursements | $13,300 | $15,460 | $18,700 | $47,460 |
(5)
Below is the cash budget:
Cash Budget | ||||
April | May | June | Quarter | |
Open Cash Balance | 8,000 | 4,350 | 4,590 | 8,000 |
Cash Collections | 56,000 | 67,200 | 82,800 | 206,000 |
Total Cash Available | 64,000 | 71,550 | 87,390 | 214,000 |
Fewer cash disbursements | ||||
For Inventory | 47,850 | 58,500 | 53,550 | 159,900 |
For Expenses | 13,300 | 15,460 | 18,700 | 47,460 |
For Equipment | 1,500 | 0 | 0 | 1,500 |
Total cash disbursements | 62,650 | 73,960 | 72,250 | 208,860 |
Excess (Deficiency in Cash) | 1,350 | -2,410 | 15,140 | 5,140 |
Financing: | ||||
Borrowing | 3,000 | 7,000 | 0 | 10,000 |
Repayments | 0 | 0 | -10,000 | -10,000 |
Interest | 0 | 0 | -230 (3,000*1%*3 + 7,000*1%*2) | -230 |
Total Financing | 3,000 | 7,000 | -10,230 | -230 |
Closing Cash Balance | $4,350 | $4,590 | $4,910 | $4,910 |
(6)
Below is the absorption costing income statement
Shilow Company | ||
Absorption Costing Income Statement for the Quarter Ended June 30 | ||
Sales (60,000 + 72,000 + 90,000) | 222,000 | |
Selling price of goods | ||
Beginning Inventory | 36,000 | |
Buy More | 159,300 | |
Products on Sale | 195,300 | |
There is less inventory at the end | 28,800 | 166,500 |
Gross Margin | 55,500 | |
Lower Selling and Administrative Costs | ||
Commissions | 26,640 | |
Rent | 7,500 | |
Depreciation (900*3) | 2,700 | |
Other expenses | 13,320 | 50,160 |
Operating Income Net | 5,340 | |
Lower Interest Costs | 230 | |
Net Income | $5,110 |
(7)
Below is the balance sheet:
Shilow Company | |||||
Balance Sheet | |||||
June 30 | |||||
Assets | Equity and Liabilities | ||||
Current Assets | Current Liabilities | ||||
Cash | 4,910 | Accounts payable (42,300*50%) | 21,150 | ||
Accounts Receivable (90,000.000*40%) | 36,000 | Total Current Liabilities | 21,150 | ||
Inventory | 28,800 | ||||
Total Current Assets | 69,710 | Stockholders Equity | |||
Capital Stock | 150,000 | ||||
Construction and Equipment, Net (120k + 1,500 – 2700) | 118,800 | Retained Earnings (12.250 + 5.110) | 17,360 | 167,360 | |
Total Assets | $188,510 | Total Liabilities and Equity | $188,510 |
_____________________________________________
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