Question

Problem 8-31 Completing a Master Budget [LO8-2, LO8-4, LO8-7, LO8-8, LO8-9, LO8-10]

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	$	44,000
Accounts receivable		203,200
Inventory		58,350
Buildings and equipment (net)		354,000
Accounts payable			$	86,325
Common stock				500,000
Retained earnings				73,225
	$	659,550	$	659,550

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

December(actual)	$	254,000
January	$	389,000
February	$	586,000
March	$	300,000
April	$	197,000

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, $19,000 per month: advertising, $59,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $42,740 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 $1,400 cash. During March, other equipment will be purchased for cash at a cost of $72,000.

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.

NB: the last 3 question please ( Required 3, Required 4 and Required 5)

Answer 1

1)	Schedule of Expected cash collections
			January	Feburary	March	Quarter
Cash sales			77800	117200	60000	255000
Credit sales			203,200	311200	468800	983,200
total collections			281000	428400	528800	1238200
Accounts receivable at march 31= 300,000*80%=240,000
2-a)		Merchandise purchase budget
			January	Feburary	March	Quarter
budgeted cost of goods sold			233400	351600	180000	765000
Add:Ending inventory			87900	45000	29550	29,550
total needs			321300	396600	209550	794550
less Beginning inventory			58,350	87,900	45,000	58,350
Required purchases			262,950	308,700	164,550	736,200
2-b)	Schedule of Expected cash disbursement for Merchandise purchase
			January	Feburary	March	Quarter
December purchases			86,325			86,325
january purchases			131475	131475		262950
Feburary purchases				154350	154350	308700
march purchases					82275	82275
total cash disbursement for purchases			217,800	285825	236625	740,250
Accounts payable=		82,275
3)			Cash budget
			January	Feburary	March	Quarter
Beginning cash balance			44,000	30,080	46375	44,000
Add cash collections			281000	428400	528800	1238200
total cash available			325,000	458480	575175	1,282,200
less cash disbursements
purchase of inventory			217,800	285825	236625	740,250
selling and adm expense			109120	124880	102000	336000
purchase of equipment			0	1,400	72,000	73400
cash dividends			45,000	0	0	45,000
total cash disbursement			371,920	412105	410625	1,194,650
Excess(Deficiency) of cash			-46,920	46375	164550	87,550
Financing
Borrowings			77,000	0	0	77,000
Repayments			0	0	-77,000	-77000
interest			0	0	-2,310	-2310
			0	0	0	0
total financing			77,000	0	-79310	-2,310
ending cash balance			30,080	46375	85240	85,240
	interest expense = 77000*1%*3
			2310
4)			income statememt
Sales						1275000
cost of goods sold
Beginning invnetory				58,350
Add purchases				736,200
cost of goods avaialble				794,550
less ending inventory				29,550		765,000
Gross profit						510,000
Selling and administrative exp
Salaries and wages				57,000
Advertising				177,000
shiiping 5% of sales				63750
other expense 3% of sales				38250
Depreciation				42,740		378,740
operating income						131,260
less interest expense						2,310
Net income						128,950
5)		Balance sheet
Asses
current assets
cash						85240
Account receivable						240,000
inventory						29,550
total current assets						354,790
buildings and Equipment (net)						384,660
total assets						739,450
liabilities & stockholders Equity
current liabilities
Accounts payable						82,275
total current liabilities						82,275
Stockholders Equity
common stock						500,000
Retained earnings		(86,475+102830-45000)				157,175
total stockholders equity						657,175
total liabilities & stockholders equity						739,450