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 $ 51,000 Accounts receivable 208,800 Inventory 59,400 Buildings and equipment (net) 361,000 Accounts payable $ 88,425 Common stock 500,000 Retained earnings 91,775 $ 680,200 $ 680,200 Actual sales for December and budgeted sales for the next four months are as follows: December(actual) $ 261,000 January $ 396,000 February $ 593,000 March $ 307,000 April $ 204,000 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, $26,000 per month: advertising, $66,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $43,860 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 $2,100 cash. During March, other equipment will be purchased for cash at a cost of $75,500. 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

Hillyard Company
Sales Budget
For the Quarter ended March 30
	January	February	March	Quarter
Budgeted Sales in Dollars	396000	593000	307000	1296000
Total Budgeted Sales	396000	593000	307000	1296000
Hillyard Company
Expected Cash Collection
For the Quarter ended March 30
	January	February	March	Quarter
Account Receivable 12/31(80% of 261000)	$208,800			208800
January Sales
20%	79200			79200
80%		316800		316800
February Sales
20%		118600		118600
80%			474400	474400
March Sales
20%			61400	61400
Total Cash Collection	288000	435400	535800	1259200
Hillyard Company
Inventory Purchase Budget
For the Quarter ended March 30
	January	February	March	Quarter
Budgeted Cost of Goods Sold(60% of Sales)	237600	355800	184200	777600
Add: Desired Ending Inventory(25% of Next Month's COGS)	88950	46050	30600	30600
Total Needs	326550	401850	214800	808200
Less: Beginning Inventory	59400	88950	46050	59400
Required Inventory Purchase	267150	312900	168750	748800
Hillyard Company
Cash Disbursement for Purchase
For the Quarter ended March 30
	January	February	March	Quarter
December Purchase	88425			88425
January Purchase(50% 0f 270000)	133575	133575		267150
February Purchase(50% 315000)		156450	156450	312900
March Purchase(50% of 165000)			84375	84375
Total cash Disbursement for Purchase	222000	290025	240825	752850
Hillyard Company
Cash Disbursement for operating Expenses
For the Quarter ended March 30
	January	February	March	Quarter
Salaries and Wages	26000	26000	26000	78000
Advertising	66000	66000	66000	198000
Shipping (5% of Sales)	19800	29650	15350	64800
Other Expenses(3% of Sales)	11880	17790	9210	38880
Total Cash Disbursement	123680	139440	116560	379680
Hillyard Company
Cash Budget
For the Quarter ended March 30
	January	February	March	Quarter
Beginning Cash Balance	51000	30320	34155	51000
Add: Cash Collection	288000	435400	535800	1259200
Total Cash Available	339000	465720	569955	1310200
Less: Cash Disbursement
Inventory Purchase	222000	290025	240825	752850
Operating Expense	123680	139440	116560	379680
Equipment Purchase	0	2100	75500	77600
Cash Dividend	45000	0	0	45000
Total Cash Disbursement	390680	431565	432885	1255130
Excess/Deficiency	-51680	34155	137070	55070
Financing:
Borrowing	82000			82000
Repayments	0		-82000	-82000
Interest(82000*12%*3/12)	0		-2460	-2460
Total Financing	82000	0	-84460	-2460
Ending Cash Balance	30320	34155	52610	52610
Hillyard Company
Budgeted Income Statement
For the Quarter ended March 30
Sales		1296000
Less:	Cost of Goods Sold	777600
Gross Margin		518400
Less:	Operating Expenses	379680
	Depreciation	43860
Operating Income		94860
Less:	Interest Expense	2460
Net Income		92400
Hillyard Company
Budgeted Balance Sheet
For the Quarter ended March 30
Current Assets
Cash		52610
Account Receivable		245600
Inventory		30600
Total Current Assets		328810
Building and Equipment		394740
(Beginning 362000+New purchase 75500+2100-Depreciation 43860)
Total Assets		723550
Liabilities and Equity
Account Payable		84375
Equity:
Common Stock		500000
Retained Earnings:
Beginning	91775
add:Net Income	92400
Total	184175
Less:Cash Dividend	45000	139175
Total Liability and Equity		723550