In: Accounting
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 | $ | 48,000 | ||||
Accounts receivable | 216,000 | |||||
Inventory | 57,000 | |||||
Buildings and equipment (net) | 371,000 | |||||
Accounts payable | $ | 94,000 | ||||
Capital shares | 480,000 | |||||
Retained earnings | 118,000 | |||||
$ | 692,000 | $ | 692,000 | |||
b. | Actual sales for December and budgeted sales for the next four months are as follows: |
December (actual) | $ | 270,000 | |
January | 380,000 | ||
February | 580,000 | ||
March | 280,000 | ||
April | 180,000 | ||
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, $28,000 per month; advertising, $64,000 per month; shipping, 5% of sales; depreciation, $15,000 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 $1,000 cash. During March, other equipment will be purchased for cash at a cost of $80,000. |
i. | During January, the company will declare and pay $43,000 in cash dividends. |
j. |
The company must maintain a minimum cash balance of $31,000. 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.) |