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

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

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter18: The Management Of Accounts Receivable And Inventories

Section: Chapter Questions

Problem 1P

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Question

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.

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

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

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

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

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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