Question

5. Prepare a balance sheet as of March 31.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:

	Debit				Credit
Cash	$	60,000
Accounts receivable		216,000
Inventory		60,750
Buildings and equipment (net)		370,000
Accounts payable					$	91,125
Common stock						500,000
Retained earnings						115,625
	$	706,750			$	706,750

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

December(actual)	$	270,000
January	$	405,000
February	$	602,000
March	$	317,000
April	$	213,000

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, $35,000 per month: advertising, $61,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $45,300 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 $3,000 cash. During March, other equipment will be purchased for cash at a cost of $80,000.

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.

3. Cash budget. (Cash deficiency, repayments and interest should be indicated by a minus sign.)

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

Answer 1

Required Budgets are as prepared below:

Hillyard Company
Schedule of expected Cash collections
For the quarter ended March 31
	Month
Particulars	January	February	March	Total	April
Sales	4,05,000	6,02,000	3,17,000	13,24,000	2,13,000
Beginning Accounts Receivable
December Credit sales (270,000*.8)	2,16,000			2,16,000
January sales	81000	3,24,000		4,05,000
February sales		1,20,400	4,81,600	6,02,000
March sales			63,400	63,400
Total collections	2,97,000	4,44,400	5,45,000	12,86,400
Account receivable for March sale			2,53,600
Hillyard Company
Merchandise Purchase Budget
For the quarter ended March 31
	Month
Particulars	January	February	March	Total
Cost of goods sold (60% of sales)	2,43,000	3,61,200	1,90,200	7,94,400	1,27,800
Add: Desired Ending merchandise inventory (25% of next month COGS)	90,300.0	47,550.0	31,950.0	31,950
Total needs	3,33,300	4,08,750	2,22,150	8,26,350
Less: beginning merchandise inventory	60,750	90,300	47,550	60,750
Required purchase	2,72,550	3,18,450	1,74,600	7,65,600
Hillyard Company
Schedule of expected Cash payments
For the quarter ended March 31
	Month
Particulars	January	February	March	Total
Beginning Accounts Payable (a)	$91,125			$91,125
January Purchases (b)	$1,36,275	$1,36,275		$2,72,550
February Purchases (c )		$1,59,225	$1,59,225	$3,18,450
March Purchases (d)			$87,300	$87,300
Total payments (a+b+c+d)	$2,27,400	$2,95,500	$2,46,525	$7,69,425
Hillyard Company
Cash Budget
For the quarter ended March 31
	Month
Particulars	January	February	March	Total
Beginning Cash balance	60,000	30,200	31,940	60,000
Add: Collection from customers	$2,97,000	$4,44,400	$5,45,000	12,86,400
cash available for use	$3,57,000	$4,74,600	$5,76,940	$13,46,400
Less: cash Disbursements
Merchandise purchase	$2,27,400	$2,95,500	$2,46,525	7,69,425
Salaries and wages	35,000	35,000	35,000	1,05,000
Advertising	61,000	61,000	61,000	1,83,000
Shipping (5% of sales)	20,250	30,100	15,850	66,200
Other exp (3% of sales)	12,150	18,060	9,510	39,720
New Copy machine	0	3,000	0	3,000
Equipment purchase		0	80,000	80,000
Dividend paid	45,000			45000
Total disbusrement	4,00,800	4,42,660	4,47,885	12,91,345
Cash surplus/Deficit	-43,800	31,940	1,29,055	55,055
Financing
Borrowing	74,000			74,000
Repayment			-74,000	-74,000
Interest			-1480	-1,480
Net cash from Financing	74,000	0	-75,480	-1,480
Budgeted ending cash balance	30,200	31,940	53,575	53,575
Hillyard Company
Budgeted Income Statement
For the quarter ended March 31
Particulars	Amount ($)	Amount ($)
Sales		13,24,000
Less: Cost of goods sold (60% of sales)		7,94,400
Gross margin		5,29,600
Less: Selling and administartive exp
Depreciation	45,300
Salaries and wages	1,05,000
Advertising	1,83,000
Shipping Charges	66,200
Other expenses	39,720	4,39,220
Net operating Income		90,380
Interest expense		1,480
Net Income		88,900
Dividend Paid		45,000
Net Income		43,900
Hillyard Company
Budgeted balance Sheet
Mar-31
Assets
Cash	53,575
Accounts Receivable	2,53,600
Inventory	31,950
Property and equipment Net	4,07,700
Total assets	7,46,825
Liabilities and Stockholders' Equity
Accounts Payable purchases	87,300
Common Stock	5,00,000
Retained earnings	1,59,525
Total liabilities and stockholders' equity	7,46,825