PROBLEM 827 Completing a Master Budget [LO82, LO84, LO87, LO88, LO89, LO810] 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 March (actual) . . . . . . . . . . . . . . $50,000 April . . . . . . . . . . . . . . . . . . . . . . $60,000 May . . . . . . . . . . . . . . . . . . . . . . $72,000 June . . . . . . . . . . . . . . . . . . . . . . $90,000 July . . . . . . . . . . . . . . . . . . . . . . $48,000 a. The gross margin is 25% of sales. b. Actual and budgeted sales data: c. 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. d. Each months ending inventory should equal 80% of the following months budgeted cost of goods sold. e. One-half of a months 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. f. 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). g. Equipment costing $1,500 will be purchased for cash in April. h. 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 following schedule: : 2. Complete the following: Schedule of Expected Cash Collections April May June Quarter Cash sales . . . . . . . . . . . . . . . . . . . . . . . $36,000 Credit sales . . . . . . . . . . . . . . . . . . . . . . 20,000 Total collections . . . . . . . . . . . . . . . . . . . $56,000

Complete the following:

Merchandise Purchases Budget April May June Quarter Budgeted cost of goods sold . . . . . . . . . . $45,000 * $54,000 Add desired ending inventory . . . . . . . . . . 43,200 Total needs . . . . . . . . . . . . . . . . . . . . . . . . 88,200 Less beginning inventory . . . . . . . . . . . . . 36,000 Required purchases . . . . . . . . . . . . . . . . . $52,200 *For April sales: $60,000 sales 3 75% cost ratio 5 $45,000. $54,000 3 80% 5 $43,200

Schedule of Expected Cash DisbursementsMerchandise Purchases April May June Quarter March purchases . . . . . . . . . . . . . . . . . . . $21,750 $21,750 April purchases . . . . . . . . . . . . . . . . . . . . 26,100 $26,100 52,200 May purchases . . . . . . . . . . . . . . . . . . . . June purchases . . . . . . . . . . . . . . . . . . . . Total disbursements . . . . . . . . . . . . . . . . $47,850

Complete the following cash budget:

Cash Budget April May June Quarter Beginning cash balance . . . . . . . . . . . . . $ 8,000 Add cash collections . . . . . . . . . . . . . . . . 56,000 Total cash available . . . . . . . . . . . . . . . . . 64,000 Less cash disbursements: For inventory . . . . . . . . . . . . . . . . . . . . 47,850 For expenses . . . . . . . . . . . . . . . . . . . . 13,300 For equipment . . . . . . . . . . . . . . . . . . . 1,500 Total cash disbursements . . . . . . . . . . . . 62,650 Excess (deficiency) of cash . . . . . . . . . . . 1,350 Financing: Etc.

4. Prepare an absorption costing income statement, similar to the one shown in Schedule 9 in the chapter, for the quarter ended June 30. 5. Prepare a balance sheet as of June 30.