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

Current assets as of March 31:Cash$9,400Accounts receivable$27,600Inventory$51,000Building and equipment, net$99,600Accounts payable$30,675Capital stock$150,000Retained earnings$6,925

1. The gross margin is 25% of sales.
2. Actual and budgeted sales data:

March (actual)$69,000April$85,000May$90,000June$115,000July$66,000

1. 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.
2. Each month's ending inventory should equal 80% of the following month's budgeted cost of goods sold.
3. 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.
4. Monthly expenses are as follows: commissions, 12% of sales; rent, $4,200 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $747 per month (includes depreciation on new assets).
5. Equipment costing $3,400 will be purchased for cash in April.
6. 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.

April May June July

Cash Sales: 51000

Credit Sales 27600

Total collections 78600

2. Complete the following:

April May June July

Budgeted cost of goods sold: 63750

Add desired ending inventory 54000

Total needs 117750

Less beginning inventory 51000

Required purchases 66750

3. Complete the following cash budget:(Borrow and repay in increments of $1,000. Cash deficiency, repayments and interest should be indicated by a minus sign.)

April May June July

beginning cash balance: 9400

Add cash collections 78600

Total cash available 88000

Less cash disbursements

for inventory 64050

for expenses 19500

for equipment 3400

total cash disbursements 86950

Excess of cash 1050

Financing

Borrowings

repayments

interest

total financing

ending cash balance

4. Make an absorption costing income statement for the quarter ended June 30.

5. Make a balance sheet as of June 30.