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:

1. As of December 31 (the end of the prior quarter), the company’s general ledger showed the following account balances:

Cash	$	50,000
Accounts receivable		208,000
Inventory		59,250
Buildings and equipment (net)		360,000
Accounts payable			$	88,125
Common stock				500,000
Retained earnings				89,125
	$	677,250	$	677,250

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

December(actual)	$	260,000
January	$	395,000
February	$	592,000
March	$	306,000
April	$	203,000

3. 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.

4. The company’s gross margin is 40% of sales. (In other words, cost of goods sold is 60% of sales.)

5. Monthly expenses are budgeted as follows: salaries and wages, $25,000 per month: advertising, $65,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $43,700 for the quarter.

6. Each month’s ending inventory should equal 25% of the following month’s cost of goods sold.

7. 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.

8. During February, the company will purchase a new copy machine for $2,000 cash. During March, other equipment will be purchased for cash at a cost of $75,000.

9. During January, the company will declare and pay $45,000 in cash dividends.

10. 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			79000	118400	61200	258600
Credit sales			208,000	316000	473600	997,600
total collections			287000	434400	534800	1256200
Accounts receivable at march 31= 306,000*80%=244,800
2-a)		Merchandise purchase budget
			January	Feburary	March	Quarter
budgeted cost of goods sold			237000	355200	183600	775800
Add:Ending inventory			88800	45900	30450	30,450
total needs			325800	401100	214050	806250
less Beginning inventory			59,250	88,800	45,900	59,250
Required purchases			266,550	312,300	168,150	747,000
2-b)	Schedule of Expected cash disbursement for Merchandise purchase
			January	Feburary	March	Quarter
December purchases			88,125			88,125
january purchases			133275	133275		266550
Feburary purchases				156150	156150	312300
march purchases					84075	84075
total cash disbursement for purchases			221,400	289425	240225	751,050
Accounts payable=		84,075
3)			Cash budget
			January	Feburary	March	Quarter
Beginning cash balance			50,000	30,000	35615	50,000
Add cash collections			287000	434400	534800	1256200
total cash available			337,000	464400	570415	1,306,200
less cash disbursements
purchase of inventory			221,400	289425	240225	751,050
selling and adm expense			121600	137360	114480	373440
purchase of equipment			0	2,000	75,000	77000
cash dividends			45,000	0	0	45,000
total cash disbursement			388,000	428785	429705	1,246,490
Excess(Deficiency) of cash			-51,000	35615	140710	59,710
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			30,000	35615	57280	57,280
	interest expense = 81000*1%*3
			2430
4)			income statememt
Sales						1293000
cost of goods sold
Beginning invnetory				59,250
Add purchases				747,000
cost of goods avaialble				806,250
less ending inventory				30,450		775,800
Gross profit						517,200
Selling and administrative exp
Salaries and wages				75,000
Advertising				195,000
shiiping 5% of sales				64650
other expense 3% of sales				38790
Depreciation				43,700		417,140
operating income						100,060
less interest expense						2,430
Net income						97,630
5)		Balance sheet
Asses
current assets
cash						57280
Account receivable						244,800
inventory						30,450
total current assets						332,530
buildings and Equipment (net)						393,300
total assets						725,830
liabilities & stockholders Equity
current liabilities
Accounts payable						84,075
total current liabilities						84,075
Stockholders Equity
common stock						500,000
Retained earnings						141,755
total stockholders equity						641,755
total liabilities & stockholders equity						725,830