Using the information above:

The following data relate to the operations of Medco Company, a wholesale distributor of consumer goods: As of March 31 (USD): Cash 15,500 Accounts payable 35,500 Accounts receivable 21,000 Capital stock 41,000 Inventory 10,080 Retained earnings 102,068 Buildings and equipment (net) 140,000 Assumptions a) Gross margin is of sales 35% b) Actual and budgeted sales data: USD March (actual) 70,000 June 75,000 April 82,000 July 70,000 May 63,000 c) Sales are for cash and on credit. Credit sales are collected in the month following sale. The accounts receivable at March 31 are the result of March credit sales. Break down between Cash & Credit sales is as follow: Cash Sale 65% Credit Sales 35% d) Each month's ending inventory should equal 20% of the following month's budgeted cost of goods sold. e) 25% of a month's inventory purchases are paid for in the month of purchase; the remainder is paid for in the following month. The accounts payable at March 31 are a result of March purchases of inventory. f) Monthly expenses are as follows: salaries and wages, $12,500 per month; rent, $3,600 per month; other expenses (excluding depreciation), 8% of sales. Assume that these expenses are paid monthly. Depreciation is $1,000 per month (includes depreciation on new assets). g) Equipment costing $9,000 will be purchased for cash in April. h) The company must maintain a minimum cash balance of $5,000. An open line of credit is available at a local bank. All borrowing is done at the beginning of a month, and all repayments are made at the end of a month; borrowing must be in multiples of $1,000. The annual interest rate is 10%. Interest is paid only at the time of repayment of principal; figure interest on whole months (1/12, 2/12, and so forth). 91 92 93 6) Prepare an absorption costing income statement for the quarter ended June 30 ( 12 points) 96 Explanation 97 98 99 Income Statement - Qtr Ended June 30 Sales Cost of goods sold: Beginning inventory Purchases Goods available for sale Ending inventory I T Gross margin 100 101 102 103 0 01 #DIV/0! Selling and administrative expenses: 104 105 106 107 108 Salaries and wages Rent Depreciation Other expenses Total S&A Expense Net operating loss Interest expense Net Income/loss 109 110 111 112 113