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 $ 50,000 224,000 61,500 366,000 $ 91,000 505,000 105,500 $701,500 $701,500 b. Actual sales for December and budgeted sales for the next four months are as follows: December (actual) January February March April $280,000 410.000 590,000 300,000 190,000 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, $29,000 per month: advertising. $71,000 per month; shipping, 5% of sales; depreciation, $12,000 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 $6,800 cash. During March, other equipment will be purchased for cash at a cost of $84,000. i. During January, the company will declare and pay $44,000 in cash dividends. j. The company must maintain a minimum cash balance of $31,000. 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

1)	Schedule of Expected cash collections
			January	Feburary	March	Quarter
Cash sales			82000	118000	60000	260000
Credit sales			224,000	328000	472000	1,024,000
total collections			306000	446000	532000	1284000
Accounts receivable at march 31= 300,000*80%=240,000
2-a)		Merchandise purchase budget
			January	Feburary	March	Quarter
budgeted cost of goods sold			246000	354000	180000	780000
Add:Ending inventory			88500	45000	28500	28,500
total needs			334500	399000	208500	808500
less Beginning inventory			61,500	88,500	45,000	61,500
Required purchases			273,000	310,500	163,500	747,000
2-b)	Schedule of Expected cash disbursement for Merchandise purchase
			January	Feburary	March	Quarter
December purchases			91,000			91,000
january purchases			136500	136500		273000
Feburary purchases				155250	155250	310500
march purchases					81750	81750
total cash disbursement for purchases			227,500	291750	237000	756,250
Accounts payable=		81,750
3)			Cash budget
			January	Feburary	March	Quarter
Beginning cash balance			50,000	31,700	31950	50,000
Add cash collections			306000	446000	532000	1284000
total cash available			356,000	477700	563950	1,334,000
less cash disbursements
purchase of inventory			227,500	291750	237000	756,250
selling and adm expense			132800	147200	124000	404000
purchase of equipment			0	6,800	84,000	90800
cash dividends			44,000	0	0	44,000
total cash disbursement			404,300	445750	445000	1,295,050
Excess(Deficiency) of cash			-48,300	31950	118950	38,950
Financing
Borrowings			80,000	0	0	80,000
Repayments			0	0	-80,000	-80000
interest			0	0	-2,400	-2400
total financing			80,000	0	-82400	-2,400
ending cash balance			31,700	31950	36550	36,550
	interest expense = 80000*1%*3
			2400
4)			income statememt
Sales						1300000
cost of goods sold
Beginning invnetory				61,500
Add purchases				747,000
cost of goods avaialble				808,500
less ending inventory				28,500		780,000
Gross profit						520,000
Selling and administrative exp
Salaries and wages				87,000
Advertising				213,000
shiiping 5% of sales				65000
other expense 3% of sales				39000
Depreciation				36,000		440,000
operating income						80,000
less interest expense						2,400
Net income						77,600
5)		Balance sheet
Asses
current assets
cash						36550
Account receivable						240,000
inventory						28,500
total current assets						305,050
buildings and Equipment (net)						420,800
total assets						725,850
liabilities & stockholders Equity
current liabilities
Accounts payable						81,750
total current liabilities						81,750
Stockholders Equity
common stock						505,000
Retained earnings						139,100
total stockholders equity						644,100
total liabilities & stockholders equity						725,850