Problem 8-29 Completing a Master Budget [LO8-2, LO8-4, LO8-7, LO8-8, LO8-9, LO8-
ID: 2554667 • Letter: P
Question
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, a wholesale distributor of consumer goods:
7,400
19,600
39,000
126,000
23,175
150,000
18,825
The gross margin is 25% of sales.
Actual and budgeted sales data:
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.
Each month’s ending inventory should equal 80% of the following month’s budgeted cost of goods sold.
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, $2,200 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $945 per month (includes depreciation on new assets).
Equipment costing $1,400 will be purchased for cash in April.
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 preceding data:
1. Complete the following schedule (Expected Cash Collection):
2. Complete the following (Merchandise Purchase Budget and Schedule of Expected cash disbursments - Merchandise Purchase Budget) :
3. Complete the following cash budget:
4. Prepare an absorption costing income statement for the quarter ended June 30.
Current assets as of March 31: Cash $7,400
Accounts receivable $19,600
Inventory $39,000
Building and equipment, net $126,000
Accounts payable $23,175
Common stock $150,000
Retained earnings $18,825
Explanation / Answer
1) Shilow company Schedule of Expected cash collections April May June Quarter Cash sales 39000 42000 57000 138000 credit sales 19,600 26000 28000 73,600 total collections 58600 68000 85000 211600 Accounts receivable = 95000*40%= 38000 2) Merchandise purchase budget April May June Quarter Budgeted cost of goods sold 48750 52500 71250 172500 34500 Add Desired ending inventory 42000 57000 27,600 27,600 total needs 90750 109500 98850 200100 less beginning inventory 39,000 42,000 57,000 39,000 Required purchases 51,750 67,500 41,850 161,100 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 23,175 23,175 April purchases 25875 25,875 51750 May purchases 33750 33,750 67500 June purchases 20925 20925 total disbursements 49,050 59625 54675 163,350 Accounts payable june 30 = 20,925 4) Cash budget April May June Quarter Beginning cash balance 7,400 4,650 4,225 7,400 Add Cash collectiosn 58600 68000 85000 211600 total cas h available 66,000 72,650 89,225 219,000 less cash disbursements for inventory 49,050 59625 54675 163,350 for expenses 13900 14800 19300 48000 for equipment 1,400 0 0 1,400 total cash disbursements 64,350 74425 73975 212,750 Excess(Deficiency)of cash 1,650 -1,775 15,250 6,250 Financing: Borrowings 3,000 6,000 0 9,000 Repayments 0 -9,000 -9,000 interest 0 -210 -210 total financing 3,000 6,000 -9210 -210 Ending cash balance 4,650 4,225 6,040 6,040 interest = 3000*1%*3= 90 6000*1%*2= 120 210 5) income statement Sales 230000 cost of goods sold Beginning inventor 39,000 Add purchases 161,100 goods available for sale 200,100 ending inventory 27,600 172,500 Gross margin 57,500 Selling and administrative expense commissions 27600 rent 6600 Depreciation (945*3) 2835 other expenses 13800 50835 net operating 6,665 interest expense 210 net income 6,455 Balance sheet Assets current assets Cash 6,040 Accounts receivable 38,000 inventory 27,600 total current assets 71,640 Building And equipment ,net (126000+1400-2835) 124565 total Assets 196,205 liabilities And stockholder 's Equity Accounts payable 20,925 total current assets 20,925 Stockholder's Equity Capital stock 150,000 Retained earnings(18,825+6455) 25280 175,280 total liabilites & stockholders Equity 196,205