Question

Hillyard Company, an office supplies specialty store, prepares its master budget on a quarterly basis. The following data have been assembled to assist in preparing the master budget for the first quarter:

1. As of December 31 (the end of the prior quarter), the company’s general ledger showed the following account balances:

Cash	$	58,000
Accounts receivable		214,400
Inventory		60,450
Buildings and equipment (net)		368,000
Accounts payable			$	90,525
Common stock				500,000
Retained earnings				110,325
	$	700,850	$	700,850

2. Actual sales for December and budgeted sales for the next four months are as follows:

December(actual)	$	268,000
January	$	403,000
February	$	600,000
March	$	315,000
April	$	211,000

3. Sales are 20% for cash and 80% on credit. All payments on credit sales are collected in the month following sale. The accounts receivable at December 31 are a result of December credit sales.

4. The company’s gross margin is 40% of sales. (In other words, cost of goods sold is 60% of sales.)

5. Monthly expenses are budgeted as follows: salaries and wages, $33,000 per month: advertising, $63,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $44,980 for the quarter.

6. Each month’s ending inventory should equal 25% of the following month’s cost of goods sold.

7. One-half of a month’s inventory purchases is paid for in the month of purchase; the other half is paid in the following month.

8. During February, the company will purchase a new copy machine for $2,800 cash. During March, other equipment will be purchased for cash at a cost of $79,000.

9. During January, the company will declare and pay $45,000 in cash dividends.

10. Management wants to maintain a minimum cash balance of $30,000. 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. 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 data above, complete the following statements and schedules for the first quarter:

1. Schedule of expected cash collections:

2-a. Merchandise purchases budget:

2-b. Schedule of expected cash disbursements for merchandise purchases:

3. Cash budget:

4. Prepare an absorption costing income statement for the quarter ending March 31.

5. Prepare a balance sheet as of March 31.

mplete the cash budget. (Cash deficiency, repayments and interest should be indicated by a minus sign.)

Requirement 3

Hillyard Company Cash Budget January February March Quarter Beginning cash balance $58,000 $30,560 $31,860 Add cash collections 295,000 442,400 543,000 1,280,400 Total cash available 353,000 472,960 574,860 1,280,400 Less cash disbursements: Inventory purchases 226,200 (294,300) (245,325) (765,825) Selling and administrative expenses 128,240 (33,000) Equipment purchases (79,000) (79,000) Cash dividends 45,000 (9,450) Total cash disbursements 399,440 (294,300) (366,775) (844,825) Excess (deficiency) of cash (46,440) 178,660 208,085 435,575 Financing: Borrowings 77,000 (79,000) Repayments (31,860) Interest (79,310) Total financing 77,000 (158,310) 0 Ending cash balance $30,560 $178,660 $49,775 $435,575

Requirement 4

pare an absorption costing income statement for the quarter ending March 31.

	Hillyard Company Income Statement For the Quarter Ended March 31 Sales Cost of goods sold: Beginning inventory Purchases Ending inventory 0 Goods available for sale 0 Gross margin 0 Selling and administrative expenses: Salaries and wages 33,000 Advertising 63,000 Shipping Depreciation Other expenses 96,000 Net operating income (96,000) Interest expense Net income $(96,000

Requirement 5:

Prepare a balance sheet as of March 31.

	Hillyard Company Balance Sheet March 31 Assets Current assets: Cash $790,800 Accounts receivable Inventory Total current assets 790,800 Buildings and equipment, net Total assets $790,800 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable Stockholders' equity: Common stock Retained earnings 0 Total liabilities and stockholders’ equity $0

NOTE__ some of my numbers already imputted could be wrong.

Answer 1

1	Schedule of Expected Cash collections for first quarter
		January	February	March	Quarter
	Sales	$403,000	$600,000	$315,000	$1,318,000
	Schedule of Expected Cash collections
	Accounts receivables	$214,400			$214,400
	Cash Sales	$80,600	$120,000	$63,000	$263,600
	From January Sales		$322,400		$322,400
	From February sales			$480,000	$480,000
	total cash collections	$295,000	$442,400	$543,000	$1,280,400
2A	Merchandise Purchase Budget for January, February and March
		January	February	March	Quarter
	Cost of goods sold	$241,800	$360,000	$189,000	$790,800
	Desired Ending Inventory	$90,000	$47,250	$31,650	$31,650
	Total needs	$331,800	$407,250	$220,650	$822,450
	Beginning Inventory	$60,450	$90,000	$47,250	$60,450
	Required Purchase	$271,350	$317,250	$173,400	$762,000
2B	Schedule of Expected Cash disbursement for January, February and March
		January	February	March	Quarter
	Accounts payable	$90,525			$90,525
	From January purchases	$135,675	$135,675		$271,350
	From February purchases		$158,625	$158,625	$317,250
	From March purchases			$86,700	$86,700
	total cash disbursement	$226,200	$294,300	$245,325	$765,825
3	Cash Budget
		January	February	March	Quarter
	Beginning Cash Balance	$58,000	$30,560	$31,860	$58,000
	Add: Cash Collection	$295,000	$442,400	$543,000	$1,280,400
	Total Cash Available	$353,000	$472,960	$574,860	$1,338,400
	Less: Cash disbursement
	Inventory purchases	$226,200	$294,300	$245,325	$765,825
	Salaries and Wages	$33,000	$33,000	$33,000	$99,000
	Advertising	$63,000	$63,000	$63,000	$189,000
	Shipping	$20,150	$30,000	$15,750	$65,900
	Other expenses	$12,090	$18,000	$9,450	$39,540
	Equipment purchase		$2,800	$79,000	$81,800
	Dividend	$45,000			$45,000
	Total Cash disbursement	$399,440	$441,100	$445,525	$1,286,065
	Excess (deficiency) of cash	($46,440)	$31,860	$129,335	$52,335
	Financing:
	Borrowing	$77,000			$77,000
	Repayment			($77,000)	($77,000)
	Interest			($2,310)	($2,310)
	Total Financing	$77,000	$0	($79,310)	($2,310)
	Ending Cash Balance	$30,560	$31,860	$50,025	$50,025
4	Income Statement for the Quarter
	Particulars	Amount
	Sales		$1,318,000
	Cost of Goods Sold:
	Beginning Inventory	$60,450
	Add: Purchases	$762,000
	Goods available for sale	$822,450
	Less: Ending Inventory	$31,650	$790,800
	Gross Profit		$527,200
	Operating expenses:
	Salaries and Wages	$99,000
	Advertising	$189,000
	Shipping	$65,900
	Other expenses	$39,540
	Depreciation	$44,980
	Total Operating expenses		$438,420
	Operating Profit		$88,780
	Non-operating expenses:
	Interest expense		$2,310
	Net income		$86,470
5	Balance Sheet
	as of March 31
	Assets:
	Cash	$50,025
	Accounts receivable	$252,000
	Inventory	$31,650
	Building and Equipment, net of depreciation	$404,820	(368000+2800+79000-44980)
	Total Assets	$738,495
	Liabilities and Stockholders Equity
	Accounts payable	$86,700
	Common Stock	$500,000
	Retained Earnings	$151,795	(110325-45000+86470)
	Total Liabilities and Stockholder's Equity	$738,495