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:

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

Cash	$	53,000
Accounts receivable		210,400
Inventory		59,700
Buildings and equipment (net)		363,000
Accounts payable			$	89,025
Common stock				500,000
Retained earnings				97,075
	$	686,100	$	686,100

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

December(actual)	$	263,000
January	$	398,000
February	$	595,000
March	$	309,000
April	$	206,000

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.

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

Monthly expenses are budgeted as follows: salaries and wages, $28,000 per month: advertising, $68,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $44,180 for the quarter.

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

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.

During February, the company will purchase a new copy machine for $2,300 cash. During March, other equipment will be purchased for cash at a cost of $76,500.

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

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

Schedule of expected cash collections
	Jan	Feb	Mar
Cash Sales	79,600.00	119,000.00	61,800.00
Collections	210,400.00	318,400.00	476,000.00
Expected cash collections	290,000.00	437,400.00	537,800.00

Merchandise purchases budget
	Jan	Feb	Mar
Cost of Goods Sold	238,800.00	357,000.00	185,400.00
Ending inventory(25% of Next Month Sale)	89,250.00	46,350.00	30,900.00
Begning Inventory	59,700.00	89,250.00	46,350.00
Merchandise purchases*	209,250.00	399,900.00	200,850.00

Schedule of expected cash disbursements for Merchandise
	Jan	Feb	Mar
Payment in Month of Purchase(50%)	104,625.00	199,950.00	100,425.00
Payment in Lasst Month Purchase(50%)	89,025.00	104,625.00	199,950.00
Expected cash disbursements	193,650.00	304,575.00	300,375.00

Cash Budget
	Jan	Feb	Mar
Balance, 1 Jan	53,000.00	30,510.00	30,435.00
Cash Collections	290,000.00	437,400.00	537,800.00
Cash Available	343,000.00	467,910.00	568,235.00
Expected payments
Expected cash disbursements for Merchandise	193,650.00	304,575.00	300,375.00
Salaries and Wages	28,000.00	28,000.00	28,000.00
advertising	68,000.00	68,000.00	68,000.00
shipping	19,900.00	29,750.00	15,450.00
other expenses	11,940.00	17,850.00	9,270.00
copy machine		2,300.00
other equipment			76,500.00
Dividend	45,000.00
Repayment of Loan(54000*2%+13000*1%)			68,210.00
Total Expected payment	366,490.00	450,475.00	565,805.00
(Shortage)/Excess Cash	(23,490.00)	17,435.00	2,430.00
Loan from bank	54,000.00	13,000.00	-
Closing cash Balance	30,510.00	30,435.00	2,430.00

Income statement for the quarter ended March 31
Sales	1,302,000.00
Cost of Goods Sold	838,800.00
Gross Profit	463,200.00
Selling and Administrative Expenses	436,340.00
Interest Expesnes(54000*2%+13000*1%)	1,210.00
Net Income	25,650.00

Selling and Admin Expesnes
	Jan	Feb	Mar	Total
Salaries and Wages	28,000.00	28,000.00	28,000.00	84,000.00
advertising	68,000.00	68,000.00	68,000.00	204,000.00
shipping	19,900.00	29,750.00	15,450.00	65,100.00
other expenses	11,940.00	17,850.00	9,270.00	39,060.00
Depreciation				44,180.00
Total Selling and Admin Expesnes				436,340.00

Cost of Goods Sold
Beginning Stock	59,700.00
Purchases	810,000.00
Closing Stock	30,900.00
Cost of Goods Sold	838,800.00

Balance Sheet as at Mar 31
Assets
Cash	2,430.00
Accounts receivable	247,200.00
Inventory	30,900.00
Plant and equipment, net of depreciation	397,620.00
Total assets	678,150.00
Liabilities and Stockholders’ Equity
Accounts payable	100,425.00
Common stock	500,000.00
Retained earnings	77,725.00
Total liabilities and stockholders’ equity	678,150.00

Dear Student,

Best effort has been made to give quality and correct answer. But if you find any issues please comment your concern. I will definitely resolve your query.

Also please give your positive rating.