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:

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

Cash	$	57,000
Accounts receivable		213,600
Inventory		60,300
Buildings and equipment (net)		367,000
Accounts payable			$	90,225
Common stock				500,000
Retained earnings				107,675
	$	697,900	$	697,900

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

December(actual)	$	267,000
January	$	402,000
February	$	599,000
March	$	314,000
April	$	210,000

3. 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.

4. The company’s gross margin is 40% of sales. (In other words, cost of goods sold is 60% of sales.)

5. Monthly expenses are budgeted as follows: salaries and wages, $32,000 per month: advertising, $64,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $44,820 for the quarter.

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

7. 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.

8. During February, the company will purchase a new copy machine for $2,700 cash. During March, other equipment will be purchased for cash at a cost of $78,500.

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

10. 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

ANS-1	Schedule of Expected Cash Collection
	December(actual)		January		February		March		April
Sale	$2,67,000.00		$4,02,000.00		$5,99,000.00		$3,14,000.00		$2,10,000.00
	Cash Sale	Credit Sale	Cash Sale	Credit Sale	Cash Sale	Credit Sale	Cash Sale	Credit Sale	Cash Sale	Credit Sale
	$53,400.00	$2,13,600.00	$80,400.00	$3,21,600.00	$1,19,800.00	$4,79,200.00	$62,800.00	$2,51,200.00	$42,000.00	$1,68,000.00
cash received on credit Sale			$2,13,600.00		$3,21,600.00		$4,79,200.00		$2,51,200.00
Total Cash Received	$53,400.00		$2,94,000.00		$4,41,400.00		$5,42,000.00		$2,93,200.00
ANS-2 (a)
	December(actual)		January		February		March		April
Sale	$2,67,000.00		$4,02,000.00		$5,99,000.00		$3,14,000.00		$2,10,000.00
Cost of Goods Sold	$1,60,200.00		$2,41,200.00		$3,59,400.00		$1,88,400.00		$1,26,000.00
Gross Margin	$1,06,800.00		$1,60,800.00		$2,39,600.00		$1,25,600.00		$84,000.00
	MERCHANDISE PURCHASE BUDGET
	December(actual)		January		February		March		April
Cost of Goods Sold	$1,60,200.00		$2,41,200.00		$3,59,400.00		$1,88,400.00		$1,26,000.00
Less:Closing Inventory	$60,300.00		$89,850.00		$47,100.00		$31,500.00
Opening Inventory	$40,050.00		$60,300.00		$89,850.00		$47,100.00
Purchase Goods	$1,39,950.00		$2,11,650.00		$4,02,150.00		$2,04,000.00
ANS- 2(b)	SCHEDULE OF EXPECTED CASH DISBURSEMENT FOR MERCHANDISE PURCHASE
	December(actual)		January		February		March		April
Purchase Goods	$1,39,950.00		$2,11,650.00		$4,02,150.00		$2,04,000.00
	Cash	Credit	Cash	Credit	Cash	Credit	Cash	Credit
	$69,975.00	$69,975.00	$1,05,825.00	$1,05,825.00	$2,01,075.00	$2,01,075.00	$1,02,000.00	$1,02,000.00
Cas paid next month			$69,975.00		$1,05,825.00		$2,01,075.00
Total cash paid	$69,975.00		$1,75,800.00		$3,06,900.00		$3,03,075.00
ANS- 3	CASH BUDGET
	DECEMBER(ACTUAL)	JANUARY	FEBRUARY	MARCH	APRIL
OPENING CASH		$57,000.00	$1,30,200.00	$2,62,000.00
Cash Sale	$53,400.00	$2,94,000.00	$4,41,400.00	$5,42,000.00
Less: cash paid in purchase	$69,975.00	$1,75,800.00	$3,06,900.00	$3,03,075.00
Less: Purchase of Copy Machine		$0.00	$2,700.00	$78,500.00
Less: Dividend Paid		$45,000.00
Closing Balance		$1,30,200.00	$2,62,000.00	$4,22,425.00

Income Statement
Particulars	Amount	Particulars	Amount
Opening Stock	$60,300.00	By Sales	$13,15,000.00
Goods purchase	$8,17,800.00	By Closing Stock	$31,500.00
By Gross Profit	$4,68,400.00
	$13,46,500.00		$13,46,500.00
Salary & Wages	$96,000.00	By Gross Profit	$4,68,400.00
Advertisment	$1,92,000.00
Shipping charges	$65,750.00
other charges	$39,450.00
Depreciation	$44,820.00
	$4,38,020.00
Net Profit	$30,380.00
	$4,68,400.00		$4,68,400.00

Balance Sheet
Liability		Amont	Assets		Amount
Equity & Liablility			Fixed Assets-
Common Stock	$5,00,000.00		Building and Equipment	$3,67,000.00
Retained Earing	$1,07,675.00		new coy machine	$2,700.00
profit	$30,380.00	$6,38,055.00	other machine	$78,500.00
			total	$4,48,200.00
Current Liablity			less:Depreceation	$44,820.00	$4,03,380.00
Account Payable		$1,22,250.00
other liablility		$3,48,200.00	Current Assets
			Inventory		$31,500.00
			Account Receivable		$2,51,200.00
			Cash		$4,22,425.00
		$11,08,505.00			$11,08,505.00