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 $ 48,000 Accounts receivable 224,000 Inventory 60,000 Buildings and equipment (net) 370,000 Accounts payable $ 93,000 Common stock 500,000 Retained earnings 109,000 $ 702,000 $ 702,000 Actual sales for December and budgeted sales for the next four months are as follows: December(actual) $ 280,000 January $ 400,000 February $ 600,000 March $ 300,000 April $ 200,000 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, $27,000 per month: advertising, $70,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $42,000 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 $1,700 cash. During March, other equipment will be purchased for cash at a cost of $84,500. 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

1)	Schedule of Expected cash collections
			January	Feburary	March	Quarter
Cash sales			80000	120000	60000	260000
Credit sales			224,000	320000	480000	1,024,000
total collections			304000	440000	540000	1284000
Accounts receivable at march 31= 300,000*80%=240,000
2-a)		Merchandise purchase budget
			January	Feburary	March	Quarter
budgeted cost of goods sold			240000	360000	180000	780000
Add:Ending inventory			90000	45000	30000	30,000
total needs			330000	405000	210000	810000
less Beginning inventory			60,000	90,000	45,000	60,000
Required purchases			270,000	315,000	165,000	750,000
2-b)	Schedule of Expected cash disbursement for Merchandise purchase
			January	Feburary	March	Quarter
December purchases			93,000			93,000
january purchases			135000	135000		270000
Feburary purchases				157500	157500	315000
march purchases					82500	82500
total cash disbursement for purchases			228,000	292500	240000	760,500
Accounts payable=		82,500
3)			Cash budget
			January	Feburary	March	Quarter
Beginning cash balance			48,000	30,000	30800	48,000
Add cash collections			304000	440000	540000	1284000
total cash available			352,000	470000	570800	1,332,000
less cash disbursements
purchase of inventory			228,000	292500	240000	760,500
selling and adm expense			129000	145000	121000	395000
purchase of equipment			0	1,700	84,500	86200
cash dividends			45,000	0	0	45,000
total cash disbursement			402,000	439200	445500	1,286,700
Excess(Deficiency) of cash			-50,000	30800	125300	45,300
Financing
Borrowings			80,000	0	0	80,000
Repayments			0	0	-80,000	-80000
interest			0	0	-2,400	-2400
			0	0	0	0
total financing			80,000	0	-82400	-2,400
ending cash balance			30,000	30800	42900	42,900
	interest expense = 80000*1%*3
			2400
4)			income statememt
Sales						1300000
cost of goods sold
Beginning invnetory				60,000
Add purchases				750,000
cost of goods avaialble				810,000
less ending inventory				30,000		780,000
Gross profit						520,000
Selling and administrative exp
Salaries and wages				81,000
Advertising				210,000
shiiping 5% of sales				65000
other expense 3% of sales				39000
Depreciation				42,000		437,000
operating income						83,000
less interest expense						2,400
Net income						80,600
5)		Balance sheet
Asses
current assets
cash						42900
Account receivable						240,000
inventory						30,000
total current assets						312,900
buildings and Equipment (net)						414,200
total assets						727,100
liabilities & stockholders Equity
current liabilities
Accounts payable						82,500
total current liabilities						82,500
Stockholders Equity
common stock						500,000
Retained earnings						144,600
total stockholders equity						644,600
total liabilities & stockholders equity						727,100