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	$	47,000
Accounts receivable		205,600
Inventory		58,800
Buildings and equipment (net)		357,000
Accounts payable			$	87,225
Common stock				500,000
Retained earnings				81,175
	$	668,400	$	668,400

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

December(actual)	$	257,000
January	$	392,000
February	$	589,000
March	$	303,000
April	$	200,000

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, $22,000 per month: advertising, $62,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $43,220 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 $1,700 cash. During March, other equipment will be purchased for cash at a cost of $73,500.

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:
Required 2A. Required 2B Required 3 Required 1 Complete the cash budget. (Cash deficiency, repayments and interest should be indicated by a minus sign Hillyard Company Cash Budget February March January Quarter $ 47,000 Beginning cash balance Add cash collections 284,000 Total cash available Less cash disbursements: Inventory purchases 219,600 Selling and administrative expenses 115,360 Equipment purchases Cash dividends 45,000 Total cash disbursements 379,960 Excess (deficiency) of cash Financing: Borrowings Repayments Interest Total financing Ending cash balance

2-b. Schedule of expected cash disbursements for merchandise purchases:

3. Cash budget:

Complete this question by entering your answers in the tabs below.

Answer 1

Calculation Jan Feb Mar Feb 589,000 Mar 303,000 Quarter 1,284,000 Hillyard Co Schedule of expected cash collections Req1 Jan Sales 392,000 Cash collections Cash sales 78,400 Credit sales 205,600 Total cash collections 284,000 =392,000*20% 117,800 313,600 431,400 60,600 471,200 531,800 256,800 990,400 1,247,200 =589,000*20% =392,000*80% =303,000*20% =589,000*80% Merchandise Purchase budget Req 2a Jan Budgeted Cost of Goods Sold 235,200 Add Desired Ending Inventory 88,350 Total Needs 323,550 Less Beginning Inventory 58,800 Required Purchases 264,750 Jan =392,000*60% =353,400*25% Feb =589,000*60% =181,800*25% Mar =303,000*60% =200,000*60%*25% Feb Mar 353,400 181,800 45,450 30,000 398,850 211,800 88,350 45,450 310,500 166,350 Quarter 770,400 30,000 800,400 58,800 741,600 End Inv of Jan End Inv of Feb Jan Feb Mar Schedule of expected cash disbursements-Purchases Reg 2b Jan Feb Mar Dec purchases - Accts Payable 87,225 Jan Purchases 132,375 132,375 Feb Purchases 155,250 155,250 Mar Purchases 83,175 Total payments for purchases 219,600 287,625 238,425 =264,750/2 Quarter 87,225 264,750 310,500 83,175 745,650 =264,750/2 =310,500/2 =310,500/2 =166,350/2 Jan Feb Mar Jan 47,000 284,000 331,000 Feb Mar 30,040 40,995 431,400 531,800 461,440 572,795 Quarter 47,000 1,247,200 1,294,200 219,600 115,360 287,625 131,120 1,700 238,425 108,240 73,500 =22,000+62,000+(392,000*(5%+3%)) =22,000+62,000+(589,000*(5%+3%)) =22,000+62,000+(303,000*(5%+3%)) Cash budget Req3 Cash balance, beginning Add Cash collections Total cash available Less cash disbursements Inventory Purchases Selling & admin expenses Equipment purchases Dividends Total Cash disbursements Excess (deficiency) of cash Financing Borrowings Repayments Interest at 1% per month Total financing Cash balance, ending 745,650 354,720 75,200 45,000 1,220,570 73,630 45,000 379,960 (48,960) 420,445 40,995 420,165 152,630 79,000 79,000 -49,000+30,000 (79,000) Round off deficiency of $48,960 to $49,000 for borrowings calculation (2,370) (2,370) 71,260 (79,000) (2,370) (81,370) 71,260 =79,000*1%*3 79,000 30,040 40,995