Question

The following data relate to the operations of Shilow Company, a wholesale distributor of consumer goods: Current assets as of March 31: Cash Accounts receivable Inventory Building and equipment, net Accounts payable Common stock Retained earnings $ 8,600 $ 24,400 $ 46,200 $ 118,800 $ 27,675 $ 150,000 $ 20,325 a. The gross margin is 25% of sales b. Actual and budgeted sales data: March (actual) April May June July $ 61,000 $ 77,000 $ 82,000 $ 107,000 $ 58,000 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 month's ending inventory should equal 80% of the following month's budgeted cost of goods sold. e. 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. f. Monthly expenses are as follows: commissions, 12% of sales, rent, $3,400 per month, other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $891 per month (includes depreciation on new assets) g. Equipment costing $2,600 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.

I'm stuck - please help with requirement 4 and 5. Thank you!

Answer 1

4)			Cash budget
			April	May	June	Quarter
Beginning cash balance			8,600	4,290	4,505	8,600
Add Cash collectiosn			70600	80000	97000	247600
total cas h available			79,200	84,290	101,505	256,200
less cash disbursements
for inventory			58,050	68625	63675	190,350
for expenses			17260	18160	22660	58080
for equipment			2,600	0	0	2,600
total cash disbursements			77,910	86785	86335	251,030
Excess(Deficiency)of cash			1,290	-2,495	15,170	5,170
Financing:
Borrowings			3,000	7,000	0	10,000
Repayments			0		-10,000	-10,000
interest			0		-230	-230
total financing			1,000	7,000	-10230	-230
Ending cash balance			4,290	4,505	4,940	4,940
	interest = 3000*1%*3=			90
		7000*1%*2=		140
				230
5)			income statement
	Sales					266000
	cost of goods sold
	Beginning inventor				46,200
	Add purchases				188,100
	goods available for sale				234,300
	ending inventory				34,800	199,500
	Gross margin					66,500
	Selling and administrative expense
	commissions				31920
	rent		(3400*3)		10200
	Depreciation		(891*3)		2673
	other expenses				15960	60753
	net operating					5,747
	interest expense					230
	net income					5,517
		Balance sheet
		Assets
		current assets
		Cash					4,940
		Accounts receivable					42,800
		inventory					34,800
		total current assets					82,540
		Building And equipment ,net					118727
		total Assets					201,267
		liabilities And stockholder 's Equity
		Accounts payable					25,425
		total current assets					25,425
		Stockholder's Equity
		Capital stock				150,000
		Retained earnings				25,842	175,842
		total liabilites & stockholders Equity					201,267