Question

The following data relate to the operations of Shilow Company, awholesale distributor of consumer goods:

Current assets as ofMarch 31:
Cash	$	8,500
Accounts receivable	$	24,000
Inventory	$	45,600
Building and equipment, net	$	121,200
Accounts payable	$	27,300
Common stock	$	150,000
Retained earnings	$	22,000

The gross margin is 25% of sales.

Actual and budgeted sales data:

March (actual)	$	60,000
April	$	76,000
May	$	81,000
June	$	106,000
July	$	57,000

Sales are 60% for cash and 40% on credit. Credit sales arecollected in the month following sale. The accounts receivable atMarch 31 are a result of March credit sales.

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

One-half of a month’s inventory purchases is paid for in themonth of purchase; the other half is paid for in the followingmonth. The accounts payable at March 31 are the result of Marchpurchases of inventory.

Monthly expenses are as follows: commissions, 12% of sales;rent, $3,300 per month; other expenses (excluding depreciation), 6%of sales. Assume that these expenses are paid monthly. Depreciationis $909 per month (includes depreciation on new assets).

Equipment costing $2,500 will be purchased for cash inApril.

Management would like to maintain a minimum cash balance of atleast $4,000 at the end of each month. The company has an agreementwith a local bank that allows the company to borrow in incrementsof $1,000 at the beginning of each month, up to a total loanbalance of $20,000. The interest rate on these loans is 1% permonth and for simplicity we will assume that interest is notcompounded. The company would, as far as it is able, repay the loanplus accumulated interest at the end of the quarter.

Required:

Using the preceding data:

1. Complete the following schedule:

2. Complete the following:

3. Complete the following cash budget:

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

5. Prepare a balance sheet as of June 30.

Complete the following schedule:

Schedule of Expected Cash Collections
	April	May	June	Quarter
Cashsales	$45,600
Creditsales	24,000
Total collections	$69,600

Complete the following:

Merchandise Purchases Budget
	April	May	June	Quarter
Budgeted cost of goodssold	$57,000	$60,750
Add desired ending merchandiseinventory	48,600
Total needs	105,600
Less beginning merchandiseinventory	45,600
Required purchases
Budgeted cost of goods sold forApril = $76,000 sales × 75% = $57,000.
Add desired ending inventoryfor April = $60,750 × 80% = $48,600.
Schedule of Expected Cash Disbursements—Merchandise Purchases
	April	May	June	Quarter
March purchases	$27,300			$27,300
April purchases	30,000	30,000		60,000
May purchases
June purchases
Total disbursements

Complete the following cash budget: (Cash deficiency, repaymentsand interest should be indicated by a minus sign.)

Shilow Company
Cash Budget
	April	May	June	Quarter
Beginningcash balance	$8,500
Addcollections from customers	69,600
Totalcash available	78,100
Less cashdisbursements:
Forinventory	57,300
Forexpenses	16,980
Forequipment	2,500
Totalcash disbursements	76,780
Excess(deficiency) of cash available over disbursements	1,320
Financing:
Borrowings
Repayments
Interest
Totalfinancing
Ending cash balance

Prepare an absorption costing income statement for the quarterended June 30.

Shilow Company
Income Statement
For the Quarter Ended June 30
Cost ofgoods sold:
Sellingand administrative expenses:

Prepare a balance sheet as of June 30.

Shilow Company
Balance Sheet
June 30
Assets
Currentassets:
Totalcurrent assets
Totalassets
Liabilities andStockholders’ Equity
Stockholders' equity:
Total liabilities and stockholders’equity