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Problem 8-29 Completing a Master Budget [LO8-2, LO8-4, LO8-7,LO8-8, LO8-9, LO8-10]

The following data relate to the operations of Shilow Company, awholesale distributor of consumer goods:

Current assets as of March 31:
Cash	$	7,200
Accounts receivable	$	18,800
Inventory	$	37,800
Building and equipment, net	$	123,600
Accounts payable	$	22,425
Common stock	$	150,000
Retained earnings	$	14,975

1. The gross margin is 25% of sales.

2. Actual and budgeted sales data:

March (actual)	$	47,000
April	$	63,000
May	$	68,000
June	$	93,000
July	$	44,000

3. Sales are 60% for cash and 40% on credit. Credit sales arecollected in the month following sale. The accounts receivable atMarch 31 are a result of March credit sales.

4. Each month’s ending inventory should equal 80% of the followingmonth’s budgeted cost of goods sold.

5. One-half of a month’s inventory purchases is paid for in themonth of purchase; the other half is paid for in the followingmonth. The accounts payable at March 31 are the result of Marchpurchases of inventory.

6. Monthly expenses are as follows: commissions, 12% of sales;rent, $2,000 per month; other expenses (excluding depreciation), 6%of sales. Assume that these expenses are paid monthly. Depreciationis $927 per month (includes depreciation on new assets).

7. Equipment costing $1,200 will be purchased for cash inApril.

8. Management would like to maintain a minimum cash balance of atleast $4,000 at the end of each month. The company has an agreementwith a local bank that allows the company to borrow in incrementsof $1,000 at the beginning of each month, up to a total loanbalance of $20,000. The interest rate on these loans is 1% permonth and for simplicity we will assume that interest is notcompounded. The company would, as far as it is able, repay the loanplus accumulated interest at the end of the quarter.

Required:

Using the preceding data:

2. Complete the merchandise purchases budget and the schedule ofexpected cash disbursements for merchandise purchases.

3. Complete the cash budget.

4. Prepare an absorption costing income statement for thequarter ended June 30.

5. Prepare a balance sheet as of June 30.

Complete the merchandise purchases budget and the schedule ofexpected cash disbursements for merchandise purchases.

Merchandise Purchases Budget April May June Quarter Budgeted cost of goods sold $47,250 $51,000 Add desired ending merchandiseinventory 40,800 Total needs 88,050 51,000 0 0 Less beginning merchandiseinventory 37,800 Required purchases $50,250 $51,000 $0 $0 Budgeted cost of goods sold for April =$63,000 sales × 75% = $47,250. Add desired ending inventory for April= $51,000 × 80% = $40,800. Schedule of Expected CashDisbursements—Merchandise Purchases April May June Quarter March purchases $22,425 $22,425 April purchases 25,125 25,125 50,250 May purchases June purchases Total disbursements $47,550 $25,125 $0 $72,675

Complete the cash budget. (Cash deficiency, repayments andinterest should be indicated by a minus sign.)

Prepare an absorption costing income statement for the quarterended June 30

Shilow Company Cash Budget April May June Quarter Beginning cash balance $7,200 Add collections from customers 56,600 Total cash available 63,800 0 0 0 Less cash disbursements: For inventory 47,550 For expenses 13,340 For equipment 1,200 Total cash disbursements 62,090 0 0 0 Excess (deficiency) of cash availableover disbursements 1,710 0 0 0 Financing: Borrowings Repayments Interest Total financing 0 0 0 0 Ending cash balance $1,710 $0 $0 $0

	Shilow Company Income Statement For the Quarter Ended June 30 Cost of goods sold: 0 0 0 Selling and administrativeexpenses: 0 0 0

Prepare a balance sheet as of June 30.

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