Problem 8-27 Completing a Master Budget [LO8-2, LO8-4, LO8-7, LO8-8, LO8-9, LO8-
ID: 2521282 • Letter: P
Question
Problem 8-27 Completing a Master Budget [LO8-2, LO8-4, LO8-7, LO8-8, LO8-9, LO8-10]
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.
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.
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).
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.
Complete the following:
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.)
Prepare an absorption costing income statement for the quarter ended June 30.
References
eBook & Resources
The following data relate to the operations of Shilow Company, a wholesale distributor of consumer goods:Explanation / Answer
1) Shilow company Schedule of Expected cash collections April May June Quarter Cash sales 36000 43200 54000 133200 credit sales 20,000 24000 28800 72,800 total collections 56000 67200 82800 206000 Accounts receivable = 90000*40%= 36000 2) Merchandise purchase budget April May June Quarter Budgeted cost of goods sold 45000 54000 67500 166500 36000 Add Desired ending inventory 43200 54000 28,800 28,800 total needs 88200 108000 96300 195300 less beginning inventory 36,000 43,200 54,000 36,000 Required purchases 52,200 64,800 42,300 159,300 cost of goods sold = 75% of sales ending inventory = 80% of following months budgeted cost of goods sold 3) Schedule of Cash disbursements-Merchandise purhcase April May June Quarter March purchases 21,750 21,750 April purchases 26100 26,100 52200 May purchases 32400 32,400 64800 June purchases 21150 21150 total disbursements 47,850 58500 53550 159,900 Accounts payable june 30 = 21,150 4) Cash budget April May June Quarter Beginning cash balance 8,000 4,350 4,590 8,000 Add Cash collectiosn 56000 67200 82800 206000 total cas h available 64,000 71,550 87,390 214,000 less cash disbursements for inventory 47,850 58500 53550 159,900 for expenses 13300 15460 18700 47460 for equipment 1,500 0 0 1,500 total cash disbursements 62,650 73960 72250 208,860 Excess(Deficiency)of cash 1,350 -2,410 15,140 5,140 Financing: Borrowings 3,000 7,000 0 10,000 Repayments 0 -10,000 -10,000 interest 0 -230 -230 total financing 3,000 7,000 -10230 -230 Ending cash balance 4,350 4,590 4,910 4,910 interest = 3000*1%*3= 90 7000*1%*2= 140 230 5) income statement Sales 222000 cost of goods sold Beginning inventor 36,000 Add purchases 159,300 goods available for sale 195,300 ending inventory 28,800 166,500 Gross margin 55,500 Selling and administrative expense commissions 26640 rent (2500*3) 7500 Depreciation (900*3) 2700 other expenses 13320 50160 net operating 5,340 interest expense 230 net income 5,110 Balance sheet Assets current assets Cash 4,910 Accounts receivable 36,000 inventory 28,800 total current assets 69,710 Building And equipment ,net (120,000+1500-2700) 118800 total Assets 188,510 liabilities And stockholder 's Equity Accounts payable 21,150 total current assets 21,150 Stockholder's Equity Capital stock 150,000 Retained earnings(12,250+5110) 17360 167,360 total liabilites & stockholders Equity 188,510