Problem 8-29 Completing a Master Budget (LO8-2, LO8-4, LO8-7, LO8-8, LO8-9, LO8-10] 1 The following data relate to the operations of Shilow Company, a wholesale distributor of consumer goods: Current assets as of March 31: Cash Accounts receivable Inventory Building and equipment, net Accounts payable Common stock Retained earnings $ 7,100 $ 18,400 $ 37,200 $ 122,400 $ 22,050 $ 150,000 $ 13,050 Print ferences a. The gross margin is 25% of sales. b. Actual and budgeted sales data: March (actual) May June July $ 46,000 $ 62,600 $ 67,800 $ 92,000 $ 43,680 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 month's ending inventory should equal 80% of the following month's budgeted cost of goods sold. e. 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. f. Monthly expenses are as follows: commissions, 12% of sales; rent, $1,900 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $918 per month (includes depreciation on new assets). g. Equipment costing $1,100 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 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. Complete the schedule of expected cash collections. Schedule of Expected Cash Collections April May June Cash sales $ 37,200 $ 42,200 $ 55,200 Quarter $ + 132,600 70,000 $ 202,600 Credit sales 18,400 24,800 26,800 Total collections $ 55,600 $ 67,000 $ 82,000 (Required 1 Required April May June Quarter Budgeted cost of goods sold $ 46,500 $50,250 $ 69,000 $ 32,250 Add desired ending merchandise inventory 40,200 55,200 25,800 121,200 Total needs 86,700 105,450 94,800 153,450 Less beginning merchandise inventory 37,200 40,200 55,200 132,600 Required purchases $ 49,500 $65,250 $ 39,600 $ 20,850 Budgeted cost of goods sold for April = $62,000 sales x 75% = $46,500. Add desired ending inventory for April = $50,250 80% = $40,200. Schedule of Expected Cash Disbursements-Merchandise Purchases April May June Quarter March purchases $ 22,050 $ 0 $ 0 $ 22,050 April purchases 24,750 24,750 0 49,500 May purchases 0 32,625 32,625 65,250 June purchases 0 0 19,800 19,800 Total disbursements $ 46,800 $57,375 $ 52,425 $ 156,600 June Quarter Shilow Company Cash Budget April May $ 7,100 $ 4,740 55,600 65,000 62,700 69,740 Beginning cash balance $ 4,405 $ 16,245 Add collections from customers 82,000 202,600 ces Total cash available 86,405 218,845 Less cash disbursements: For inventory 46,800 57,375 52,425 For expenses 13,060 13,960 18,460 156,600 45,480 1,100 For equipment 1,100 Total cash disbursements 60,960 71,335 70,885 203,180 1,740 (1,595) 15,520 15,665 Excess (deficiency) of cash available over disbursements Financing: Borrowings Repayments 3,000 6,000 9,000 9,000 9,000 Interest 210 210 Total financing 9,210 18,210 3,000 $ 4,740 6,000 $ 4,405 Ending cash balance $ 24,730 $ 33,875 Shilow Company Income Statement For the Quarter Ended June 30 Sales $ 221,000 Cost of goods sold: 0 0 221,000 Gross margin Selling and administrative expenses: Commissions 26,520 Rent 5,700 Other expenses 13,260 Depreciation 2,754 Other expenses 48,234 Net operating income 172,766 Interest expense 210 Net income 172,556 Prepare a balance sheet as of June 30. Shilow Company Balance Sheet June 30 Assets Current assets: Total current assets 0 Total assets $ 0 Liabilities and Stockholders' Equity Stockholders' equity: 0 Total liabilities and stockholders' equity $ 0 Required 4