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 preparation of 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: Credits Cash Accounts receivable Inventory Buildings and equipment (net) Accounts payable Capital shares Retained earnings Debits $ 49,000 224,000 57,000 356,000 $ 93,000 485,000 108,000 $686,000 $686,000 b. Actual sales for December and budgeted sales for the next four months are as follows: December (actual) January February March April $280,000 380,000 540,000 250.000 180,000 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. e. Monthly expenses are budgeted as follows: salaries and wages, $25,000 per month: advertising. $71,000 per month; shipping, 5% of sales; depreciation, $13,000 per month; other expenses, 3% of sales. f. At the end of each month, inventory is to be on hand equal to 25% of the following month's sales needs, stated at cost. g. One-half of a month's inventory purchases are paid for in the month of purchase; the other half are paid for in the following month. h. During February, the company will purchase a new copy machine for $6,200 cash. During March, other equipment will be purchased for cash at a cost of $78,000. i. During January, the company will declare and pay $47,000 in cash dividends. The company must maintain a minimum cash balance of $32,000. An open line of credit is available at a local bank for any borrowing that may be needed during the quarter. All borrowing is done at the beginning of a month, and all repayments are made at the end of a month. Borrowings and repayments of principal must be in multiples of $1,000. Interest is paid only at the time of payment of principal. The annual interest rate is 12%. (Figure interest on whole months, e.g., 1/12, 2/12.)

Answer 1

Answer is given below with working

Sales Budget January $380,000 February $540,000 March Quarter $250,000 $1,170,000 Budgeted Sales (value) 1. Expected Cash Collection Cash Sales Credit Sales Total Cash Collections January $76,000 $224,000 $300,000 February $108,000 $304,000 $412,000 March Quarter $50,000 234,000 $432,000 960,000 $482,000 $1,194,000 COGS Sales COGS -60% January $380,000 $228,000 February $540,000 $324,000 March Quarter $250,000 $1,170,000 $150,000 $702,000 April $180,000 $108,000 2.a) Inventory Purchase Budget Budgeted COGS Add: Closing inventory - (25% of next month COGS) Total Needs Less: Opening Inventory Purchase Budget Closing stock of month will be opening stock of next month January $228,000 $81,000 $309,000 $57,000 $252,000 February $324,000 $37,500 $361,500 $81,000 $280,500 March $150,000 $27,000 $177,000 $37,500 $139,500 Quarter $702,000 $27,000 $729,000 $57,000 $672,000 | 2.b) Expected Cash disbursements for Materials Purchases February March January $93,000 $126,000 December Purchase January Purchase February Purchase March Purchase Total purchase payment to Vendors $126,000 $140,250 Quarter $93,000 $252,000 $280,500 $69,750 $695,250 $140,250 $69,750 $210,000 $219,000 $266,250 Operating Expenses Salaries and Wages Advertising Shipping - 5% Other expenses-3% Cash disbursements for Operating expenses Depreciation Total Selling and administration expenses January $25,000 $71,000 $19,000 $11,400 $126,400 $13,000 $139,400 February $25,000 $71,000 $27,000 $16,200 $139,200 $13,000 $152,200 March $25,000 $71,000 $12,500 $7,500 $116,000 $13,000 $129,000 Quarter $75,000 $213,000 $58,500 $35,100 $381,600 $39,000 $420,600 4. January 49,000 300,000 349,000 February 32,400 412,000 444,400 March 32,950 482,000 514,950 Quarter 49,000 1,194,000 1,243,000 266,250 139,200 78,000 210,000 116,000 Cash Budget Opening Balance Add: cash collections Total cash available Less: cash disbursements For inventory purchase For selling and administrative expense excluding depreciation Purchase of Assets Dividend Total cash disbursement Excess (deficiency of) of cash available over disbursements Financing Borrowings Repayments Interest (at 1% per month) Total financing Closing Cash Balance 219,000 126,400 6,200 47,000 398,600 -$49,600 695,250 381,600 84,200 47,000 1,208,050 $34,950 483,450 -$39,050 326,000 $188,950 $82,000 $72,000 -$153,000 -$3,900 -$156,900 $32,050 $154,000 $153,000 $3,900 -$2,900 $32,050 $82,000 $32,400 $72,000 $32,950 Interest on short term borrowing @1% Month Borrowing interest January $82,000 $2,460 Interest for 3 month February $72,000| $1,440 Interest for 2 month $3,900 $1,170,000 Hillyard Company Budgeted Income Statement for March 31st Sales Les: Cost of Goods Sold Opening stock Add: Purchase Goods available for Sale Less: Closing Stock Cost of Goods sold Gross Margin Less: Operating expenses Selling and administrative expense Depreciation Interest on Short term loan Net Operating Income $57,000 $672,000 $729,000 $27,000 $702,000 $468,000 $381,600 $39,000 $3,900 $43,500 Hillyard Company Budgeted Balance Sheet for March 31st Assets Current Assets Cash Accounts receivable Inventory $32,050 $200,000 $27,000 $259,050 Fixed Assets Buildings and equipment Additions $356,000 $84,200 $440,200 $39,000 $401,200 $660,250 Less: Depreciation during the Quarter Total Assets Liabilities and Stockholders' Equity Current Liabilities Accounts payable Short term loan Stockholders' Equity Common stock Retained Earnings Total Stockholders' Equity Total Liabilities and Stockholders' Equity $69,750 $1,000 $70,750 $485,000 $104,500 $589,500 $660,250 Retained Earnings balance Opening balance Add: Net profit Less: Dividend Closing balance of Retained earnings $108,000 $43,500 -$47,000 $104,500