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 preparation of the master budget for the first quarter:

a.	As of December 31 (the end of the prior quarter), the company’s general ledger showed the following account balances:

	Debits			Credits
Cash	$	50,000
Accounts receivable		216,000
Inventory		57,000
Buildings and equipment (net)		371,000
Accounts payable				$	91,000
Capital shares					500,000
Retained earnings					103,000
	$	694,000		$	694,000

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

December (actual)	$	270,000
January		380,000
February		570,000
March		240,000
April		220,000

c.	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.
d.	The company’s gross margin is 40% of sales.
e.	Monthly expenses are budgeted as follows: salaries and wages, $26,000 per month; advertising, $70,000 per month; shipping, 5% of sales; depreciation, $14,000 per month; other expenses, 3% of sales.
f.	At the end of each month, inventory is to be on hand equal to 25% of the following month’s sales needs, stated at cost.
g.	One-half of a month’s inventory purchases are paid for in the month of purchase; the other half are paid for in the following month.
h.	During February, the company will purchase a new copy machine for $1,500 cash. During March, other equipment will be purchased for cash at a cost of $85,500.
i.	During January, the company will declare and pay $46,000 in cash dividends.
j.	The company must maintain a minimum cash balance of $30,000. An open line of credit is available at a local bank for any borrowing that may be needed during the quarter. All borrowing is done at the beginning of a month, and all repayments are made at the end of a month. Borrowings and repayments of principal must be in multiples of $1,000. Interest is paid only at the time of payment of principal. The annual interest rate is 12%. (Figure interest on whole months, e.g., 1/12, 2/12.)

Required:

Using the preceding data, complete the following statements and schedules for the first quarter:

1.	Schedule of expected cash collections.

      

2-a.	Inventory purchases budget.

          

2-b.	Schedule of cash disbursements for purchases.

          

3.	Schedule of cash disbursements for expenses.

      

4.	Cash budget. (Roundup "Borrowing" and "Repayments" answers to the nearest whole dollar amount. Any "Repayments" and "Interest" should be indicated by a minus sign.)

      

5.	Prepare an income statement for the quarter ending March 31.

      

6.	Prepare a balance sheet as of March 31.

      

Answer 1