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:

a.	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

b.	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

c.	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.
d.	The company’s gross margin is 40% of sales. (In other words, cost of goods sold is 60% of sales.)
e.	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.
f.	Each month’s ending inventory should equal 25% of the following month’s cost of goods sold.
g.	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.
h.	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.
i.	During January, the company will declare and pay $45,000 in cash dividends.
j.	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: SOME ANSWER PROVIDED
Hillyard Company Schedule of Expected Cash Collections January February March Quarter Cash sales $79,600 $119,000 $61,800 $260,400 Credit sales 210,400 318,400 476,000 1,004,800 Total collections $290,000 $437,400 $537,800 $1,265,200 Hillyard Company Merchandise Purchases Budget January February March Quarter Budgeted cost of goods sold 238,800* $357,000 $185,400 $781,200 Add desired ending inventory 89,250† 46,350 30,900 166,500 Total needs 328,050 403,350 216,300 947,700 Less beginning inventory 59,700 89,250 46,350 30,900 Required purchases $268,350 $314,100 $169,950 $916,800 Hillyard Company Schedule of Expected Cash Disbursements for Merchandise Purchases January February March Quarter December purchases $89,025 $89,025 January purchases 134,175 134,175 268,350 February purchases 2,300 2,300 March purchases 76,500 76,500 Total cash disbursements for purchases $223,200 $136,475 $76,500 $436,175 Hillyard Company Cash Budget January February March Quarter Beginning cash balance $53,000 Add cash collections 290,000 437,400 537,800 1,265,200 Total cash available 343,000 437,400 537,800 1,265,200 Less cash disbursements: Purchases of inventory 223,200 Selling and administrative expenses 127,840 Purchases of equipment Cash dividends 45,000 Total cash disbursements 396,040 0 0 0 Excess (deficiency) of cash (53,040) 437,400 537,800 1,265,200 Financing: Borrowings Repayments Interest Total financing 0 0 0 Ending cash balance $(53,040) $437,400 $537,800 $1,265,200

	Hillyard Company Income Statement For the Quarter Ended March 31 Cost of goods sold: 0 0 0 Selling and administrative expenses: 0 0 $0

Answer 1

Cash collection:	jan	feb	mar	Quarter
Sales	398000	595000	309000	1302000
cash sales	79600	119000	61800	260400
Dec	210400			210400
jan		318400		318400
feb			476000	476000
total	290000	437400	537800	1265200
Purchase budget:
	Jan	feb	mar
COGS	238800	357000	185400	781200
ending invent	89250	46350	30900
Total needs	328050	403350	216300
less:beg invent	59700	89250	46350
Req purch	268350	314100	169950
Cash Disbursement for purchases:
Dec	89025
jan	134175	134175
feb		157050	157050
mar			84975
Total	223200	291225	242025
Cash budget:				Quarter
begin balance	53000	30000	30275	53000
cash collec	290000	437400	537800	1265200
total cash available	343000	467400	568075	1318200
Less: cash disbur:
Purchases	223200	291225	242025	756450
salary	28000	28000	28000	84000
advertise	68000	68000	68000	204000
shipping	19900	29750	15450	65100
others	11940	17850	9270	39060
purch machine		2300	76500	78800
dividend	45000			45000
Total disbursement	396040	437125	439245	1272410
Excess of cash over disbur	-53040	30275	128830	45790
Minimum bal	30000	30000	30000
Financing	83040			83040
Repayment			-83040	-83040
Interest			-2491	-2491
Closing balance	30000	30275	43299	43299
Income Statement :	Amount $
Sales	1302000
Less: COGS	781200
GP	520800
less: Expenses:
Salary	84000
advertise	204000
shipping	65100
others	39060
depreciation	44180
Interest	2491
Total expenses	438831
Net Operating Income	81969