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	$	49,000
Accounts receivable		207,200
Inventory		59,100
Buildings and equipment (net)		359,000
Accounts payable			$	87,825
Common stock				500,000
Retained earnings				86,475
	$	674,300	$	674,300

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

December(actual)	$259,000
January	$394,000
February	$591,000
March	$305,000
April	$202,000

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, $24,000 per month: advertising, $64,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $43,540 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 $1,900 cash. During March, other equipment will be purchased for cash at a cost of $74,500.
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:
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 absorbtion 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			78800	118200	61000	258000
Credit sales			207,200	315200	472800	995,200
total collections			286000	433400	533800	1253200
Accounts receivable at march 31= 305,000*80%=244,000
2-a)		Merchandise purchase budget
			January	Feburary	March	Quarter		April
budgeted cost of goods sold			236400	354600	183000	774000		121200
Add:Ending inventory			88650	45750	30300	30,300
total needs			325050	400350	213300	804300
less Beginning inventory			59,100	88,650	45,750	59,100
Required purchases			265,950	311,700	167,550	745,200
2-b)	Schedule of Expected cash disbursement for Merchandise purchase
			January	Feburary	March	Quarter
December purchases			87,825			87,825
january purchases			132975	132975		265950
Feburary purchases				155850	155850	311700
march purchases					83775	83775
total cash disbursement for purchases			220,800	288825	239625	749,250
Accounts payable=		83,775
3)			Cash budget
			January	Feburary	March	Quarter
Beginning cash balance			49,000	30,680	38075	49,000
Add cash collections			286000	433400	533800	1253200
total cash available			335,000	464080	571875	1,302,200
less cash disbursements
purchase of inventory			220,800	288825	239625	749,250
selling and adm expense			119520	135280	112400	367200
purchase of equipment			0	1,900	74,500	76400
cash dividends			45,000	0	0	45,000
total cash disbursement			385,320	426005	426525	1,237,850
Excess(Deficiency) of cash			-50,320	38075	145350	64,350
Financing
Borrowings			81,000	0	0	81,000
Repayments			0	0	-81,000	-81000
interest			0	0	-2,430	-2430
total financing			81,000	0	-83430	-2,430
ending cash balance			30,680	38075	61920	61,920
	interest expense = 81000*1%*3
			2430
4)			income statememt
Sales						1290000
cost of goods sold
Beginning invnetory				59,100
Add purchases				745,200
cost of goods avaialble				804,300
less ending inventory				30,300		774,000
Gross profit						516,000
Selling and administrative exp
Salaries and wages				72,000
Advertising				192,000
shiiping 5% of sales				64500
other expense 3% of sales				38700
Depreciation				43,540		410,740
operating income						105,260
less interest expense						2,430
Net income						102,830
5)		Balance sheet
Asses
current assets
cash						61920
Account receivable						244,000
inventory						30,300
total current assets						336,220
buildings and Equipment (net)			(359000+1900+74500-43540)			391860
total assets						728,080
liabilities & stockholders Equity
current liabilities
Accounts payable						83,775
total current liabilities						83,775
Stockholders Equity
common stock						500,000
Retained earnings		(86,475+102830-45000)				144305
total stockholders equity						644,305
total liabilities & stockholders equity						728,080