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		58,500
Buildings and equipment (net)		365,000
Accounts payable				$	94,000
Capital shares					490,000
Retained earnings					105,500
	$	689,500		$	689,500

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

December (actual)	$	270,000
January		390,000
February		580,000
March		250,000
April		190,000

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, $27,000 per month; advertising, $71,000 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 $3,000 cash. During March, other equipment will be purchased for cash at a cost of $84,000.
i.	During January, the company will declare and pay $46,000 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.)

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.)

      

Answer 1

1)	Schedule of Expected cash collections
			January	Feburary	March	Quarter
Cash sales			78000	116000	50000	244000
Credit sales			216,000	312000	464000	992,000
total collections			294000	428000	514000	1236000
Accounts receivable at march 31= 250,000*80%=200,000
2-a)		Merchandise purchase budget
			January	Feburary	March	Quarter
budgeted cost of goods sold			234000	348000	150000	732000
Add:Ending inventory			87000	37500	28500	28,500
total needs			321000	385500	178500	760500
less Beginning inventory			58,500	87,000	37,500	58,500
Required purchases			262,500	298,500	141,000	702,000
2-b)	Schedule of Expected cash disbursement for Merchandise purchase
			January	Feburary	March	Quarter
December purchases			94,000			94,000
january purchases			131250	131250		262500
Feburary purchases				149250	149250	298500
march purchases					70500	70500
total cash disbursement for purchases			225,250	280500	219750	725,500
Accounts payable=		70,500
3)			Cash budget
			January	Feburary	March	Quarter
Beginning cash balance			50,000	31,550	31650	50,000
Add cash collections			294000	428000	514000	1236000
total cash available			344,000	459550	545650	1,286,000
less cash disbursements
purchase of inventory			225,250	280500	219750	725,500
selling and adm expense			129200	144400	118000	391600
purchase of equipment			0	3,000	84,000	87000
cash dividends			46,000	0	0	46,000
total cash disbursement			400,450	427900	421750	1,250,100
Excess(Deficiency) of cash			-56,450	31650	123900	35,900
Financing
Borrowings			88,000	0	0	88,000
Repayments			0	0	-88,000	-88000
interest			0	0	-2,640	-2640
total financing			88,000	0	-90640	-2,640
ending cash balance			31,550	31650	33260	33,260
	interest expense = 88000*1%*3
			2640
4)			income statememt
Sales						1220000
cost of goods sold
Beginning invnetory				58,500
Add purchases				702,000
cost of goods avaialble				760,500
less ending inventory				28,500		732,000
Gross profit						488,000
Selling and administrative exp
Salaries and wages				81,000
Advertising				213,000
shiiping 5% of sales				61000
other expense 3% of sales				36600
Depreciation				45,000		436,600
operating income						51,400
less interest expense						2,640
Net income						48,760
5)		Balance sheet
Asses
current assets
cash						33260
Account receivable						200,000
inventory						28,500
total current assets						261,760
buildings and Equipment (net)						407,000
total assets						668,760
liabilities & stockholders Equity
current liabilities
Accounts payable						70,500
total current liabilities						70,500
Stockholders Equity
common stock						490,000
Retained earnings		(86,475+102830-45000)				108,260
total stockholders equity						598,260
total liabilities & stockholders equity						668,760