The following data relate to the operations of Shillow Company, a wholesale distributor of common goods: Current assets as of March 31: Cash $ 9,300 Accounts receivable $ 27,200 Inventory $ 50,400 Building and equipment, net $ 102,000 Accounts payable $ 30,300 Common stock $ 150,000 Retained earnings $ 8,600 The gross margin is 25% of sales. Actual and budgeted sales data: March (actual) $ 68,000 April $ 84,000 May $ 89,000 June $ 114,000 July $ 65,000 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, $4,100 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $765 per month (includes depreciation on new assets). Equipment costing $3,300 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: 1. prepare an absorption costing income statement for the quarter ended June 30 2. prepare a balance sheet as of june 30
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
The following data relate to the operations of Shillow Company, a wholesale distributor of common goods:
| Current assets as of March 31: | |
|---|---|
| Cash | $ 9,300 |
| Accounts receivable | $ 27,200 |
| Inventory | $ 50,400 |
| Building and equipment, net | $ 102,000 |
| Accounts payable | $ 30,300 |
| Common stock | $ 150,000 |
| $ 8,600 |
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The gross margin is 25% of sales.
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Actual and budgeted sales data:
| March (actual) | $ 68,000 |
|---|---|
| April | $ 84,000 |
| May | $ 89,000 |
| June | $ 114,000 |
| July | $ 65,000 |
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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.
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Each month’s ending inventory should equal 80% of the following month’s budgeted cost of goods sold.
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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.
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Monthly expenses are as follows: commissions, 12% of sales; rent, $4,100 per month; other expenses (excluding
depreciation ), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $765 per month (includes depreciation on new assets). -
Equipment costing $3,300 will be purchased for cash in April.
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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:
1. prepare an absorption costing income statement for the quarter ended June 30
2. prepare a balance sheet as of june 30
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Hi thank you so much for your response,
the income statement goes a little more in depth, as part of cost of goods sold it also asks for begginning and ending inventory, goods available for sale, and purchases; all under the cost of goods sold section. Theres also a selling and administrative expenses section that asks for stuff like accounts payable and receivable, buildings and equipment, cash, common stock, notes payable, prepaid insurance, etc. I'll insert an image of what the question looks like. Each of the empty spaces has a dropdown list.
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