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

1)	Schedule of Expected cash collections
			January	Feburary	March	Quarter
Cash sales			81000	120400	63400	264800
Credit sales			216,000	324000	481600	1,021,600
total collections			297000	444400	545000	1286400
Accounts receivable at march 31= 317,000*80%=253,600
2-a)		Merchandise purchase budget
			January	Feburary	March	Quarter
budgeted cost of goods sold			243000	361200	190200	794400
Add:Ending inventory			90300	47550	31950	31,950
total needs			333300	408750	222150	826350
less Beginning inventory			60,750	90,300	47,550	60,750
Required purchases			272,550	318,450	174,600	765,600
2-b)	Schedule of Expected cash disbursement for Merchandise purchase
			January	Feburary	March	Quarter
December purchases			91,125			91,125
january purchases			136275	136275		272550
Feburary purchases				159225	159225	318450
march purchases					87300	87300
total cash disbursement for purchases			227,400	295500	246525	769,425
Accounts payable=		87,300
3)			Cash budget
			January	Feburary	March	Quarter
Beginning cash balance			60,000	30,200	31940	60,000
Add cash collections			297000	444400	545000	1286400
total cash available			357,000	474600	576940	1,346,400
less cash disbursements
purchase of inventory			227,400	295500	246525	769,425
selling and adm expense			128400	144160	121360	393920
purchase of equipment			0	3,000	80,000	83000
cash dividends			45,000	0	0	45,000
total cash disbursement			400,800	442660	447885	1,291,345
Excess(Deficiency) of cash			-43,800	31940	129055	55,055
Financing
Borrowings			74,000	0	0	74,000
Repayments			0	0	-74,000	-74000
interest			0	0	-2,220	-2220
total financing			74,000	0	-76220	-2,220
ending cash balance			30,200	31940	52835	52,835
	interest expense = 74000*1%*3
			2220
4)			income statememt
Sales						1324000
cost of goods sold
Beginning invnetory				60,750
Add purchases				765,600
cost of goods avaialble				826,350
less ending inventory				31,950		794,400
Gross profit						529,600
Selling and administrative exp
Salaries and wages				105,000
Advertising				183,000
shiiping 5% of sales				66200
other expense 3% of sales				39720
Depreciation				45,300		439,220
operating income						90,380
less interest expense						2,220
Net income						88,160
5)		Balance sheet
Asses
current assets
cash						52835
Account receivable						253,600
inventory						31,950
total current assets						338,385
buildings and Equipment (net)						407,700
total assets						746,085
liabilities & stockholders Equity
current liabilities
Accounts payable						87,300
total current liabilities						87,300
Stockholders Equity
common stock						500,000
Retained earnings						158,785
total stockholders equity						658,785
total liabilities & stockholders equity						746,085