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:

         

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

Cash	$	54,000
Accounts receivable		211,200
Inventory		59,850
Buildings and equipment (net)		364,000
Accounts payable			$	89,325
Common stock				500,000
Retained earnings				99,725
	$	689,050	$	689,050

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

December(actual)	$	264,000
January	$	399,000
February	$	596,000
March	$	311,000
April	$	207,000

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. (In other words, cost of goods sold is 60% of sales.)

e.     Monthly expenses are budgeted as follows: salaries and wages, $29,000 per month: advertising, $67,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $44,340 for the quarter.

f.      Each month’s ending inventory should equal 25% of the following month’s cost of goods sold.

g.    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.

h.    During February, the company will purchase a new copy machine for $2,400 cash. During March, other equipment will be purchased for cash at a cost of $77,000.

i.      During January, the company will declare and pay $45,000 in cash dividends.

j.      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.

Required 2A

	Merchandise Purchases Budget January February March Quarter Budgeted cost of goods sold 239,400* $357,600 Add desired ending inventory 89,400† Total needs 328,800 357,600 0 0 Less beginning inventory 59,850 Required purchases $268,950 $357,600 $0 $0 *$399,000 sales × 60% cost ratio = $239,400. †$357,600 × 25% = $89,400.

·      

Answer 1

Sales
December	$          2,64,000.00
January	$          3,99,000.00
February	$          5,96,000.00
March	$          3,11,000.00
April	$          2,07,000.00
		Hillyard Company
	Schedule of Expected cash collection
	January	February	March	Quarter
Cash Sales	$              79,800.00	$        1,19,200.00	$        62,200.00	$             2,61,200.00
Credit Sales	$          2,11,200.00	$        3,19,200.00	$    4,76,800.00	$           10,07,200.00
Total Cash collection	$          2,91,000.00	$        4,38,400.00	$    5,39,000.00	$           12,68,400.00
Working
	January	February	March
Cash Sales	399000*20%	596000*20%	311000*20%
Credit Sales	264000*80%	399000*80%	596000*80%
	Cost of goods sold
January	399000*60%=	$        2,39,400.00
February	596000*60%=	$        3,57,600.00
March	311000*60%=	$        1,86,600.00
April	207000*60%	$        1,24,200.00
	Schedule of Merchandise Purchase Budget
	January	February	March	Quarter
Budgeted cost of goods sold=(A)	$          2,39,400.00	$        3,57,600.00	$    1,86,600.00	$             7,83,600.00
Add: Desired Ending Inventory=(B)	$              89,400.00	$            46,650.00	$        31,050.00	$                 31,050.00
Total needs=(C )=(A)+(B)	$          3,28,800.00	$        4,04,250.00	$    2,17,650.00	$             8,14,650.00
Beginning Inventory=(D)	59850	$            89,400.00	$        46,650.00	59850
Required Purchases=(C )-(D)	$          2,68,950.00	$        3,14,850.00	$    1,71,000.00	$             7,54,800.00
Working
Closing Stock
January	357600*25%
February	186600*25%
March	124200*25%
	Schedule of expected cash disbursement of merchandise Purchase
	January	February	March	Quarter
December Purchase	$              89,325.00			$                 89,325.00
January Purchase 50% in Jan, 50% in February	$          1,34,475.00	$        1,34,475.00		$             2,68,950.00
February Purchases 50% in Feb,50% in Mar		$        1,57,425.00	$    1,57,425.00	$             3,14,850.00
March Purchases=50% in March			$        85,500.00	$                 85,500.00
Disbursement for merchandise purchased	$          2,23,800.00	$        2,91,900.00	$    2,42,925.00	$             7,58,625.00
	Schedule of cash disbursement for selling & administerative expenses
	January	February	March	Quarter
Salaries & Wages	$              29,000.00	$            29,000.00	$        29,000.00	$                 87,000.00
Advertising	$              67,000.00	$            67,000.00	$        67,000.00	$             2,01,000.00
Shipping	$              19,950.00	$            29,800.00	$        15,550.00	$                 65,300.00
Other Expenses	$              11,970.00	$            17,880.00	$          9,330.00	$                 39,180.00
Total cash disbursement for selling & administerative expenses	$          1,27,920.00	$        1,43,680.00	$    1,20,880.00	$             3,92,480.00
Working
	January	February	March
Shipping Expenses	399000*5%	596000*5%	311000*5%
Other Expenses	399000*3%	596000*3%	311000*3%
	Hillyard Company
	For the three months ending March 31st
Months	January	February	March	Quarter
Cash Balance	$              54,000.00	$            30,280.00	$        30,700.00	$                 54,000.00
Add: Collections from customer	$          2,91,000.00	$        4,38,400.00	$    5,39,000.00	$           12,68,400.00
Total Cash available	$          3,45,000.00	$        4,68,680.00	$    5,69,700.00	$           13,22,400.00
Less: Disbursement
Merchandise Purchase	$          2,23,800.00	$        2,91,900.00	$    2,42,925.00	$             7,58,625.00
Selling & administerative expenses	$          1,27,920.00	$        1,43,680.00	$    1,20,880.00	$             3,92,480.00
Equipment Purchase		$              2,400.00	$        77,000.00	$                 79,400.00
Cash dividend	$              45,000.00			$                 45,000.00
Total Disbursemnts	$          3,96,720.00	$        4,37,980.00	$    4,40,805.00	$           12,75,505.00
Excess/Deficiency of receipts over
disbursements=(A)	$            (51,720.00)	$            30,700.00	$    1,28,895.00	$                 46,895.00
Financing:
Borrowings	$              82,000.00			$                 82,000.00
Repayments			$      (82,000.00)	$              (82,000.00)
Interest=			$        (2,460.00)	$                 (2,460.00)
Total Financing=(B)	$              82,000.00		$      (84,460.00)	$                 (2,460.00)
Cash Balance ,ending=(A)+(B)	$              30,280.00	$            30,700.00	$        44,435.00	$                 44,435.00