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 preparation of the master budget for the first quarter:

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

	Debits			Credits
Cash	$	47,000
Accounts receivable		232,000
Inventory		63,000
Buildings and equipment (net)		366,000
Accounts payable				$	95,000
Capital shares					500,000
Retained earnings					113,000
	$	708,000		$	708,000

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

December (actual)	$	290,000
January		420,000
February		670,000
March		310,000
April		180,000

c.	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.
d.	The company’s gross margin is 40% of sales.
e.	Monthly expenses are budgeted as follows: salaries and wages, $25,000 per month; advertising, $69,000 per month; shipping, 5% of sales; depreciation, $15,000 per month; other expenses, 3% of sales.
f.	At the end of each month, inventory is to be on hand equal to 25% of the following month’s sales needs, stated at cost.
g.	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.
h.	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 $83,000.
i.	During January, the company will declare and pay $43,000 in cash dividends.
j.	The company must maintain a minimum cash balance of $28,000. An open line of credit is available at a local bank for any borrowing that may be needed during the quarter. All borrowing is done at the beginning of a month, and all repayments are made at the end of a month. Borrowings and repayments of principal must be in multiples of $1,000. Interest is paid only at the time of payment of principal. The annual interest rate is 12%. (Figure interest on whole months, e.g., 1/12, 2/12.)

Required:

Using the preceding data, complete the following statements and schedules for the first quarter:

4.	Cash budget. (Roundup "Borrowing" and "Repayments" answers to the nearest whole dollar amount. Any "Repayments" and "Interest" should be indicated by a minus sign.)

      

5.	Prepare an income statement for the quarter ending March 31.

      

6.	Prepare a balance sheet as of March 31.

      

References

eBook & Resources

Answer 1

1)	Schedule of Expected cash collections
			January	Feburary	March	Quarter
Cash sales			84000	134000	62000	280000
Credit sales			232,000	336000	536000	1,104,000
total collections			316000	470000	598000	1384000
Accounts receivable at march 31= 310,000*80%=248,000
2-a)		Merchandise purchase budget
			January	Feburary	March	Quarter		April
budgeted cost of goods sold			252000	402000	186000	840000		108000
Add:Ending inventory			100500	46500	27000	27,000
total needs			352500	448500	213000	867000
less Beginning inventory			63,000	100,500	46,500	63,000
Required purchases			289,500	348,000	166,500	804,000
2-b)	Schedule of Expected cash disbursement for Merchandise purchase
			January	Feburary	March	Quarter
December purchases			95,000			95,000
january purchases			144750	144750		289500
Feburary purchases				174000	174000	348000
march purchases					83250	83250
total cash disbursement for purchases			239,750	318750	257250	815,750
Accounts payable=		83,250
3)			Cash budget
			January	Feburary	March	Quarter
Beginning cash balance			47,000	28,650	29300	47,000
Add cash collections			316000	470000	598000	1384000
total cash available			363,000	498650	627300	1,431,000
less cash disbursements
purchase of inventory			239,750	318750	257250	815,750
selling and adm expense			127600	147600	118800	394000
purchase of equipment			0	3,000	83,000	86000
cash dividends			43,000	0	0	43,000
total cash disbursement			410,350	469350	459050	1,338,750
Excess(Deficiency) of cash			-47,350	29300	168250	92,250
Financing
Borrowings			76,000	0	0	76,000
Repayments			0	0	-76,000	-76000
interest			0	0	-2,280	-2280
total financing			76,000	0	-78280	-2,280
ending cash balance			28,650	29300	89970	89,970
	interest expense = 76000*1%*3
			2280
4)			income statememt
Sales						1400000
cost of goods sold
Beginning invnetory				63,000
Add purchases				804,000
cost of goods avaialble				867,000
less ending inventory				27,000		840,000
Gross profit						560,000
Selling and administrative exp
Salaries and wages				75,000
Advertising				207,000
shiiping 5% of sales				70000
other expense 3% of sales				42000
Depreciation				45,000		439,000
operating income						121,000
less interest expense						2,280
Net income						118,720
5)		Balance sheet
Asses
current assets
cash						89970
Account receivable						248,000
inventory						27,000
total current assets						364,970
buildings and Equipment (net)			(366000+86000-45000)			407,000
total assets						771,970
liabilities & stockholders Equity
current liabilities
Accounts payable						83,250
total current liabilities						83,250
Stockholders Equity
common stock						500,000
Retained earnings		(113000+118720-43000)				188,720
total stockholders equity						688,720
total liabilities & stockholders equity						771,970