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: As of December 31 (the end of the prior quarter), the company’s general ledger showed the following account balances: Cash $ 60,000 Accounts receivable 216,000 Inventory 60,750 Buildings and equipment (net) 370,000 Accounts payable $ 91,125 Common stock 500,000 Retained earnings 115,625 $ 706,750 $ 706,750 Actual sales for December and budgeted sales for the next four months are as follows: December(actual) $ 270,000 January $ 405,000 February $ 602,000 March $ 317,000 April $ 213,000 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. The company’s gross margin is 40% of sales. (In other words, cost of goods sold is 60% of sales.) Monthly expenses are budgeted as follows: salaries and wages, $35,000 per month: advertising, $61,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $45,300 for the quarter. Each month’s ending inventory should equal 25% of the following month’s 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 in the following month. During February, the company will purchase a new copy machine for $3,000 cash. During March, other equipment will be purchased for cash at a cost of $80,000. During January, the company will declare and pay $45,000 in cash dividends. 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.

Answer 1

1) Schedule of Expected Cash Collection
Total Sales	405000	602000	317000	213000
	January	February	March	Quarter- Total
Cash Sales	81,000	120,400	63,400	264,800
Credit sales
December	216,000			216,000
January		324,000		324,000
February			481,600	481,600
Total Cash Collections	297,000	444,400	545,000	1,286,400
2 a) Merchandise Purchase Budget
	January	February	March
Budgeted Cost of goods sold	243,000	361,200	190,200	127,800
Add: required closing inventory	90,300	47,550	31,950
Total needs	333,300	408,750	222,150
Less: opening inventory	(60,750)	(90,300)	(47,550)
Required inventory purchases	272,550	318,450	174,600
2 b) Schedule of Expected Cash Disbursement
	January	February	March	Quarter- Total
Accounts Payable, December 31	91,125			91,125
January Purchases	136,275	136,275		272,550
February Purchases		159,225	159,225	318,450
March Purchases			87,300	87,300
Total Cash disbursements	227,400	295,500	246,525	769,425
Hillyard Company.
Cash Budget
For the quarter ended September 30
	January	February	March	Quarter- Total
Cash Balance, beginning	60,000	30,2000	31,940	60,000
Add collections fom sales	297,000	444,400	545,000	1,286,400
Total Cash available	357,000	474,600	576,940	1,346,400
Less disbursements
For inventory purchases	227,400	295,500	246,525	769,425
For Salaries and Wages	35,000	35,000	35,000	105,000
For Advertsing expenses	61,000	61,000	61,000	183,000
For Shipping expenses (5% of sales)	20,250	30,100	15,850	66,200
For other expenses (3% of sales)	12,150	18,060	9,510	39,720
For Machine		3,000		3,000
For Equipment			80,000	80,000
For dividends	45,000			45,000
Total disbursements	400,800	442,660	447,885	1,291,345
Excess (deficiency) of cash available over disbursements	(43,800)	31,940	129,055	55,055
Financing
Borrowings	74,000			74,000
Repayment			(74,000)	(74,000)
Interest			(2220)	(2,220)
Total Financing/ Financing Cost	74,000		(76,220)	(2,250)
Minimum Cash Balance	30,000	30,000	30,000	30,000
Cash balance, ending	30,200	31,940	52,835	52,835