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	$	48,000
Accounts receivable		224,000
Inventory		60,000
Buildings and equipment (net)		370,000
Accounts payable			$	93,000
Common stock				500,000
Retained earnings				109,000
	$	702,000	$	702,000

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

December(actual)	$	280,000
January	$	400,000
February	$	600,000
March	$	300,000
April	$	200,000

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, $27,000 per month: advertising, $70,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $42,000 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 $1,700 cash. During March, other equipment will be purchased for cash at a cost of $84,500.

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

As per the given information Hillyard company, an office supplies speciality store, preparing
the master budget for the first quarter of the year.
1. Schedule of expected cash collections:				4.Income statement for the quarter ended March 31
Particulars	January	February	March		Particulars	Amount ($)
Cash collected from					Sales for 3 months	1300000
Collected from Cash sales	80000	120000	60000		Less :Cost of goods sold(60% of sales)	780000
Opening Acccounts receivbale	224000				Gross margin	520000
Collected from January credit sales		320000			Other expenses:
Collected from Feb credit sales			480000		Salaries and wages(27000*3)	81000
					Advertisement expenses(70000*3)	210000
	304000	440000	540000		shipping cost(5% of sales)	65000
					Other expenses(3% of sales)	39000
					Depreciation	42000
					Interest expense(1% per month)	2400
2-a. Merchandise Purchases budget:					Total other expenses	439400
					Net profit	80600
Particulars	January	February	March
Cost of goods sold (60% of sales)	240000	360000	180000		5.Balance sheet as on March 31
Closing inventory should be (25% of cost
of goods sold of next month)	90000	45000	30000		Assets
	330000	405000	210000
Less: Opening inventory	60000	90000	45000		Cash	42900
Purchases during the month	270000	315000	165000		Accounts receivable	240000
					Inventory	30000
2-b. Schedule of expected cash disbursements for merchandise purchases:	Buildings and equipment net	414200
Particulars	January	February	March		Liabilities
Amount paid for opening accounts payable	93000				Accounts payable		82500
Cash paid for january month purchases	135000	135000			Common stock		500000
Cash paid for february month purchases		157500	157500		Retained earnings		109000
Cash paid for march month purchases			82500		Add: Profit during the year		80600
	228000	292500	240000				189600
3. Cash Budget:					Less: Dividends declared		45000
					Net retained earnings		144600
Particulars	January	February	March		Total	727100	727100
Opeing cash balance	48000	30000	30800
Expected cash collections as per 1	304000	440000	540000
	352000	470000	570800
Amount paid for purchases as per 2-b	228000	292500	240000
Expenses paid for other expenses
Salaries and wages	27000	27000	27000
Advertisement expenses	70000	70000	70000
shipping cost(5% of sales)	20000	30000	15000
Other expenses(3% of sales)	12000	18000	9000
Purchase of machine & euipment in cash		1700	84500
Payment of dividends	45000
Total cash disbursements	402000	439200	445500
Cash balance	-50000	30800	125300		ekkarill92 Next > < Previous Related Solutions Hillyard Company, an office supplies specialty store, prepares its master budget on a quarterly basis. The... 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 $ 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 Actual sales... Hillyard Company, an office supplies specialty store, prepares its master budget on a quarterly basis. The... Hillyard Company, an office supplies specialty store, prepares its master budget on a quarterly basis. 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