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 $ 64,000 Accounts receivable 219,200 Inventory 61,350 Buildings and equipment (net) 374,000 Accounts payable $ 92,325 Common stock 500,000 Retained earnings 126,225 $ 718,550 $ 718,550 Actual sales for December and budgeted sales for the next four months are as follows: December(actual) $ 274,000 January $ 409,000 February $ 606,000 March $ 321,000 April $ 217,000 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, $39,000 per month: advertising, $57,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $45,940 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 $3,400 cash. During March, other equipment will be purchased for cash at a cost of $82,000. 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.

Required: Using the data above, complete the following statements and schedules for the first quarter: 1. Cash budget: 2. Prepare an absorption costing income statement for the quarter ending March 31. 3. Prepare a balance sheet as of March 31.

Answer 1

1)	Schedule of Expected cash collections
			January	Feburary	March	Quarter
Cash sales			81800	121200	64200	267200
Credit sales			219,200	327200	484800	1,031,200
total collections			301000	448400	549000	1298400
Accounts receivable at march 31= 321,000*80%=256,800
2-a)		Merchandise purchase budget
			January	Feburary	March	Quarter
budgeted cost of goods sold			245400	363600	192600	801600
Add:Ending inventory			90900	48150	32550	32,550
total needs			336300	411750	225150	834150
less Beginning inventory			61,350	90,900	48,150	61,350
Required purchases			274,950	320,850	177,000	772,800
2-b)	Schedule of Expected cash disbursement for Merchandise purchase
			January	Feburary	March	Quarter
December purchases			92,325			92,325
january purchases			137475	137475		274950
Feburary purchases				160425	160425	320850
march purchases					88500	88500
total cash disbursement for purchases			229,800	297900	248925	776,625
Accounts payable=		88,500
3)			Cash budget
			January	Feburary	March	Quarter
Beginning cash balance			64,000	30,480	33100	64,000
Add cash collections			301000	448400	549000	1298400
total cash available			365,000	478880	582100	1,362,400
less cash disbursements
purchase of inventory			229,800	297900	248925	776,625
selling and adm expense			128720	144480	121680	394880
purchase of equipment			0	3,400	82,000	85400
cash dividends			45,000	0	0	45,000
total cash disbursement			403,520	445780	452605	1,301,905
Excess(Deficiency) of cash			-38,520	33100	129495	60,495
Financing
Borrowings			69,000	0	0	69,000
Repayments			0	0	-69,000	-69000
interest			0	0	-2,070	-2070
total financing			69,000	0	-71070	-2,070
ending cash balance			30,480	33100	58425	58,425
	interest expense = 69000*1%*3
			2070
4)			income statememt
Sales						1336000
cost of goods sold
Beginning invnetory				61,350
Add purchases				772,800
cost of goods avaialble				834,150
less ending inventory				32,550		801,600
Gross profit						534,400
Selling and administrative exp
Salaries and wages				117,000
Advertising				171,000
shiiping 5% of sales				66800
other expense 3% of sales				40080
Depreciation				45,490		440,370
operating income						94,030
less interest expense						2,070
Net income						91,960
5)		Balance sheet
Asses
current assets
cash						58425
Account receivable						256,800
inventory						32,550
total current assets						347,775
buildings and Equipment (net)						413,910
total assets						761,685
liabilities & stockholders Equity
current liabilities
Accounts payable						88,500
total current liabilities						88,500
Stockholders Equity
common stock						500,000
Retained earnings						173,185
total stockholders equity						673,185
total liabilities & stockholders equity						761,685