Question

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

Current assets as of March 31:
Cash	$	7,600
Accounts receivable	$	20,400
Inventory	$	40,200
Building and equipment, net	$	128,400
Accounts payable	$	23,925
Capital stock	$	150,000
Retained earnings	$	22,675

The gross margin is 25% of sales.

Actual and budgeted sales data:

  

March (actual)	$	51,000
April	$	67,000
May	$	72,000
June	$	97,000
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, $2,400 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $963 per month (includes depreciation on new assets).

Equipment costing $1,600 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 data above:

1. Complete the following schedule.

Schedule of Expected Cash Collections
	April	May	June	Quarter
Cash sales	$40,200
Credit sales	20,400
Total collections	$60,600	$0	$0	$0

2. Complete the following:

Merchandise Purchases Budget
	April	May	June	Quarter
Budgeted cost of goods sold	$50,250
Add desired ending inventory	43,200
Total needs	93,450	0	0	0
Less beginning inventory	40,200
Required purchases	$53,250	$0	$0	$0

Schedule of Expected Cash Disbursements—Merchandise Purchases
	April	May	June	Quarter
March purchases	$23,925			$23,925
April purchases	26,625	26,625		53,250
May purchases
June purchases
Total disbursements	$50,550	$26,625	$0	$77,175

Answer 1