Following is selected information relating to the operations of Shilow Company, a wholesale distributor: Current assets as
Question:
Following is selected information relating to the operations of Shilow Company, a wholesale distributor: |
Current assets as of March 31: | |||
Cash | $ | 32,000 | |
Accounts receivable | 44,000 | ||
Inventory | 79,200 | ||
Plant and equipment, net | 202,000 | ||
Accounts payable | 63,200 | ||
Capital shares | 270,000 | ||
Retained earnings | 24,000 | ||
a. | Gross margin is 25% of sales. |
b. | Actual and budgeted sales data are as follows: |
March (actual) | $ | 110,000 | |
April | 132,000 | ||
May | 144,000 | ||
June | 162,000 | ||
July | 108,000 | ||
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. | At the end of each month, inventory is to be on hand equal to 80% of the following month’s sales needs, stated at cost. |
e. | One-half of a month’s inventory purchases are paid for in the month of purchase; the other half are 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% of sales; rent, $7,000 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $2,100 per month (includes depreciation on new assets). |
g. | Equipment costing $2,700 will be purchased for cash in April. |
h. | The company must maintain a minimum cash balance of $8,000. 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 12%. Interest is paid only at the time of repayment of principal; figure interest on whole months (1/12, 2/12, and so forth). |
Required: | |||||||||||||||
Using the preceding data: 1.
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5. Prepare an income statement for the quarter ended June 30.
6. Prepare a balance sheet as of June 30.