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
Capital stock	$	150,000
Retained earnings	$	12,250

a.	The gross margin is 25% of sales.
b.	Actual and budgeted sales data:

March (actual)	$50,000
April	$60,000
May	$72,000
June	$90,000
July	$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 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 data above:

1.

Complete the following schedule.

Schedule of Expected Cash Collections

	April	May	June	Quarter
Cash Sales	$36,000
Credit Sales	$20,000
Total Collections	$56,000

2.

Complete the following:

Merchandise Purchases Budget

	April	May	June	Quarter
Budgeted cost of goods sold	$45,000
Add desired ending inventory	$43,200
Total needs	$88,200
Less beginning inventory	$36,000
Required purchases	$52,200

Budgeted cost of goods sold for April = $60,000 sales 75% = $45,000.

Add desired ending inventory for April = $54,000 80% = $43,200.

Schedule of Expected Cash Disbursements Merchandise 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

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.)

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 cas disbursements	$62,650
Escess (deficiency) of cash	$1,350
Financing:
Borrowings
Repayments
Interest
Total financing
Ending cash balance

4.

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

Income Statement

For the Quarter Ended June 30

Sales
Cost of goods sold:
Beginning inventory
Purchases
Goods available for sale
Ending inventory
Gross margin
Selling and administrative expenses:
Commissions
Rent
Depreciation
Other expenses

5.	Prepare a balance sheet as of June 30.

Balance Sheet

June 30

	Assets
Current assets:
Cash
Accounts receivable
Inventory
Total current assets
Building and equipment net
Total assets
	Liabilities and Stockholders Equity
Account payable
Stockholders equity:
Common stock
Total liability and stockholders equity