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Hillyard Company, an office supplies specialty store, prepares its master budget on a quarterly basis. The...

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:

                                                                                         Debits         Credits

            Cash                                                                $   38,000

            Accounts Receivable                                          196,000

            Inventory                                                              55,800

            Buildings & Equipment (net)                             295,000

            Accounts Payable                                                                    $ 82,000

            Capital Stock                                                                           400,000

            Retained Earnings                                           ________        102,800

                                                                                    $584,800         $584,800

                                                                                    =======        =======

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

                  December (actual)       $280,000

                  January                        310,000

                  February                      320,000

                  March                          290,000

                  April                            260,000

Sales are 30% for cash and 70% 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, $22,000 per month: advertising, $52,000 per month; shipping, 2% of sales; other expenses, 8% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $28,000 for the quarter.

Each month’s ending inventory should equal 30% of the following month’s cost of goods sold.

40% of a month’s inventory purchases are paid for in the month of purchase; the remainder is paid for in the following month.

During February, the company will purchase land for $20,000 cash. During March, additional land will be purchased for cash at a cost of $15,000.

During January, the company will declare and pay $50,000 in cash dividends.

The company must maintain a minimum cash balance of $25,000. 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. Borrowing and repayment 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:

           

            Part 1:

            Using the data above, complete the following statements and schedules                           for the first quarter:

           

Schedule of expected cash collections

Merchandise purchases budget.

Schedule of expected cash disbursements for merchandise purchases

d. Schedule of expected cash disbursements for selling and administrative expenses

e.   Cash budget

f.   Prepare an absorption costing income statement for the quarter ending March 31.

g. Prepare a balance sheet as of March 31

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