PROBLEM 9-27 Completing a Master Budget (L09-2, L09-4, L09-7, L09-8, L09-9, L09-10) The following data relate to the operations of Shilaw Company a wholesale distributor of con sumer goods: Current assets as of March 31: Cash .. Accounts receivable.. Inventory... Buildings and equipment, net. Accounts payable.... Capital stock......... Retained earnings.... $8,000 $20,000 $36.000 $120,000 $21.750 $150,000 $12,250 a. b. The gross margin is 25% of sales. Actual and budgeted sales data: March (actual)... April ......... May ...... June.. July .. $50,000 $60,000 $72.000 $90,000 $48.000 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, $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: Schedule of Expected Cash Collections April May June Quarter Cash sales ............ $36,000 44,000 57,200 137,200 Credit sales...... ... 20,000 24,000 28,800 72.800 Total collections........ $56,000 68,000 86,000 210,000 2. Complete the following: Merchandise Purchases Budget April May Budgeted cost of goods sold .......... $45,000 $54,000 - Add desired ending Inventory.. 43,200 54.000 Total needs... 88.200 108,00 Less beginning Inventory.... 36,000 43,200 Required purchases. $52.200 64.800 June Quarter 67,500 ,500 38,400 135,God 105,900 302.10 54. 36.000 51.900 168.900 X 807 "For April sales: $60,000 sales x 75% cost ratio = $45,000 $54,000 x 80% $43.200 Schedule of Expected Cash Disbursements--Merchandise Purchases April May June Quarter $21,750 . $21,750 March purchases.. $26,100 26,100 52,200 April purchases. 32,00 32,400 C4.300 May purchases.... 25.950 25,950 June purchases.... $47,850 58.500 Total disbursements.. 58,900 24,100 3. Complete the following cash budget: . Beginning cash balance.. Add cash collections.. . Total cash available..... Less cash disbursements For inventory For expenses. For equipment Total cash disbursements.. Excess deficiency of cash. Financing Cash Budget April May June $8,000 4.350 4.5AD 56,000 67,200 82,800 64.000 1.950 37.390 47.850 58.500 53,550 13,300 5,4GO 18.700 1.500 0 0 62,650 23,960 74,050 Quarter 8,000 206,000 214.000 194,900 47,4GO 1500 208.800 . 1.350 in the Prepare an absorption costing income statement, similar to the one shown in Schedule chapter, for the quarter ended June 30, Prepare a balance sheet as of June 20 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. P9-27 Requirement May June April Schedule of expected cash collections: Cash Sales: Credit Sales: Total Collections $ 36,000.00 $ 20,000.00 $ 56,000.00 $ $ $ - . - $ $ $ - - - Quarter $ 36,000.00 $ 20,000.00 $ 56,000.00 Requirement 2 June Merchandise Purchases Budget: Budgeted Cost of Goods Sold: Add Desired Ending Inventory: Total Needs: Less Beginning Inventory: Required Purchases: April $ 45,000.00 $ 43,200.00 $ 88,200.00 $ 36,000.00 $ 52,200.00 May $ 54,000.00 $ $ - $ $ 54,000.00 $ $ - $ $ 54,000.00 $ Quarter $ 99,000.00 $ 43,200.00 $ 142,200.00 $ 36,000.00 $ 106,200.00 - June Schedule of Expected Cash Disbursments - Merchandise Purchases: March Purchases: April Purchases: May Purchases: June Purchases: Total Disbursements: April May $ 21,750.00 $ 26,100.00 $ 26,100.00 - Quarter $ 21,750.00 $ 52,200.00 $ $ 47,850.00 $ 26,100.00 $ - $ 73,950.00 Requirement 3. May June Cash Budget: Beginning Cash Balance: Add Cash Collections: $ April 8,000.00 $ - . $ S - - $ $ Quarter 8,000.00 56,000.00 $ 64,000.00 - - $ 64,000.00 $ $ Total Cash Available: Less Cash Disbursements: For Inventory: For Expenses: For Equipment: Total Cash Disbursements: $ 47,850.00 $ 13,300.00 $ 1,500.00 $ 62,650.00 $ $ $ $ - - - $ 47,850.00 $ 13,300.00 $ 1,500.00 $ 62,650.00 . $ 1,350.00 $ $ Excess (Deficiency) of Cash: 1,350.00 > $ - $ - $ os - Financing Borrowings: Repayments: Interest: Total Financing: Ending Cash Balance: - $ $ - - $ $ - - $ $ $ 1,350.00 $ 1,350.00 Requirement 4. Shilow Company Income Statement For the Quarter Ended June 30 Sales: Cost of Goods Sold: Beginning Inventory: Add Purchases: Goods Available for Sale: Ending Inventory: Gross Margin: Selling and Administrative Expenses: Commissions: Rent: Depreciation: Other Expenses: Net Operating Income: Interest Expense: Net Income: Requirement 5. Shilow Company Balance Sheet 30-Jun ASSETS: Current Assets: Cash: Accounts Receivables: Inventory: Total Current Assets: Fixed Assets: Building and Equipment Accumulated Depreciation - Building/Equip Total Fixed Assets: Total Assets: LIABILITIES AND STOCKHOLDER'S EQUITY: Liabilities: Accounts payable: Total Liabilities: Stockholder's Equity: Common Stock: Retained Earnings: Total Stockholder's Equity: Total Liabilities and Stockholder's Equity