Question

Problem 8-31 (REV) 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	$	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

2. 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

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, $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.

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 $3,000 cash. During March, other equipment will be purchased for cash at a cost of $80,000.

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.

Answer 1

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1 Requirement-1 2 3 Particulars Schedule of expected cash collections January February $ 4,05,000.00 6,02,000.00 | March 3.17,000.00 4 Budgeted Sales S Quarter 13,24,000.00 $ 5 6 Cash Sale 7 Collection for credit sales 8 Total Collections $ 81,000.00 $ 2,16,000.00 $ 2,97,000.00 $ $ 1,20.400.00 3,24,000.00 4,44,400.00 S S $ 63.400.00 $ 2.64.800.00 4.81,600.00 $ 10.21.600.00 5,45,000.00 $ 12,86,400.00 10 Requirement-2 11 12 Merchandise Purchase Budget January February Particulars March Quarter ,90,200.00 $ 7,94,400.00 31,950.00 S 2,22,150.00 S 47,550.00 $ 1,74,600.00 $ 31,950.00 8,26,350.00 60,750.00 7,65,600.00 13 Budgeted Cost of Goods Sold (60% of Sales) $ 2,43,000.00 $ 3,61,200.00 $ Add: Desired ending merchandise inventory 14 (25% of next month COGS) S 90,300.00 47,550.00 S 15 Total Needs S 3,33,300.00 4,08,750.00 S 16 Less: Beginning inventory $ 60,750.00 S 90,300.00 $ 17 Required purchases $ 2,72,550.00 $ 3,18,450.00 $ 18 Requirement-2(a) Schedule of expected cash disbursement 20 Particulars January February 21 December Purchases S 91,125.00 22 January Purchases $ 1.36,275.00 $ 1,36,275.00 23 February Purchases 1.59.225.00S 24 march Purchases S 25 Total Disbursement $ 2,27,400.00 $ 2,95,500.00 $ 19 March Quarter 91,125.00 2,72,550.00 3.18.450.00 87,300.00 7,69,425.00 1 S $ S S $ 59.225.00 87,300.00 2,46,525.00

A 28 Requirement-3 Shilow Company Cash Budget January February 60,000.00 30,200.00 4,44,400.00 3,57,000.00 $ 4,74.600.00 $ $ S S March 31,940.00 5,45,000.00 5,76.940.00 $ $ $ Quarter 60,000.00 12,86,400.00 13,46,400.00 $ S $ 2,27,400.00 35,000.00 $ $ S 30 Particulars 32 Opening Cash balance 33 Add: Collection from customers 34 Total Cash Available 35 Less - Cash Disbursement: 36 For Inventory 37 Salaries and wages 38 Advertisement 39 Shipping 40 other Expenses 41 Copy machine 42 Eqipment 43 Cash dividends 44 Total Cash disbursement Excess (deficiency) of cash available over 45 disbursements 46 Financing: 47 Borrowings 48 Repayments 49 Interest s 50 Total Financing 51 Ending cash balance $ 20.250.00 $ $ 12,150.00 $ S - S $ - IS $ 45,000 $ $ 4,00,800.00 $ 2.95,500.00 35,000.00 S 61,000.00 30,100.00 18,060.00 3,000.00 - - 4,42,660.00 $ $ S S S S $ 2,46,525.00 $ 7,69,425.00 3 5,000.00 $ 1,05,000.00 61,000.00 $ 1,83,000.00 15,850.00 $ 66,200.00 9,510.00 $ 39,720.00 - $ 3,000.00 80,000.00 S 80.000.00 45,000 4,47,885.00 $ 12,91,345.00 Fred S (43,800.00) S 31.940.00 $ 1.29.055.00 $ 55,055.00 $ S 74,000.00 - - 74,000.00 30,200.00 S S $ $ $ - S - S - $ 31,940.00 $ - $ (74.000.00) S (2.220.00) S (76,220.00) $ 52,835.00 $ 74,000.00 (74.000.00) (2.220.00) (2,220.00) 52,835.00 $ $

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D Amount A 79 Requirement-5 Shilow Company Balance sheet 30-Jun Particulars 84 Assets: 85 Cash 86 Accounts receivables (317000*80%) 87 Inventory 88 Building and equipment, net 89 Total Assets 90 91 Liabilities and stockholder's Equity: 92 Accounts payable (174600*50%) 93 Common Stock 94 Retained Eamings 95 Total liabilities and stockholders equity 96 S 52,835.00 $ 2,53,600.00 $ 31,950.00 407700 (370000+3000+80000-45300) $ 7,46,085.00 S S 87,300.00 5,00,000.00 158785 (88160+115625-45000) S 7,46,085.00 97

E 1 Requirement-1 Particulars Schedule of expected cash collections January 405000 602000 February March 317000 Quarter =SUM(B4:D4) 4 Budgeted Sales 5 6 7 8 Cash Sale Collection for credit sales Total Collections =+B4*20% 216000 =SUM(B6:B7) =+C4*20% =405000*80% =SUM(C6:07) =+D4*20% =602000*80% =SUM(D6:D7) |=SUM(B6:D) =SUMB7:D) =SUM(E6:57) 10 Requirement-2 Merchandise Purchase Budget January Particulars February March Quarter 13 Budgeted Cost of Goods Sold (60% of Sales) =+B4*60% =+C4*60% =+D4*60% =SUM(B13:013) #213000*60%*25% =D14 =SUM(D13:D14) =SUME 13:E14) =+C14 =+B16 =+D15-D16 =+E15-E16 19 14 Add: Desired ending merchandise inventory (25% of next month COGS) =+C13*25% =+D13*25% 15 Total Needs =SUM(B13:B14) =SUM(C13:C14) 16 Less: Beginning inventory =+B13*25% =+B14 17 Required purchases =+B15-B16 |=+C15-C16 18 Requirement-2(a) Schedule of expected cash disbursement 20 Particulars January February 21 December Purchases 91125 22 January Purchases =272550*50% |=272550*50% 23 February Purchases =318450*50% 24 march Purchases 25 Total Disbursement =SUM(B21:B24) =SUM(C21:C24) 26 March Quarter =SUM(B21:D21) =SUM(B22:D22) =SUMB23:D23) =SUM(B24:D24) =SUM(E21:E24) =318450*50% =174600*50% =SUMD21:D24)

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79 Requirement-5 Shilow Company Balance sheet Amount 82 44012 Particulars 84 Assets: 85 Cash 86 Accounts receivables (317000*80%) 87 Inventory 88 Building and equipment, net 89 Total Assets 52835 =317000*80% 31950 =+(370000+3000+80000-45300) =SUM(B85:888) (370000+3000+80000-45300) 91 Liabilities and stockholder's Equity: 92 Accounts payable (174600*50%) 93 Common Stock 94 Retained Earnings 95 Total liabilities and stockholders equity =174600*50% 500000 =+(88160+115625-45000) =SUM(B92:B94) (88160+115625-45000) 97