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:

		Debits		Credits
Cash	$	51,000
Accounts receivable		208,800
Inventory		59,400
Buildings and equipment (net)		361,000
Accounts payable			$	88,425
Common stock				500,000
Retained earnings				91,775
	$	680,200	$	680,200

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

December (actual)	$	261,000
January	$	396,000
February	$	593,000
March	$	307,000
April	$	204,000

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, $26,000 per month: advertising, $66,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $43,860 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 $2,100 cash. During March, other equipment will be purchased for cash at a cost of $75,500.

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:

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			79200	118600	61400	259200
Credit sales			208,800	316800	474400	1,000,000
total collections			288000	435400	535800	1259200
Accounts receivable at march 31= 307,000*80%=245,600
2-a)		Merchandise purchase budget
			January	Feburary	March	Quarter
budgeted cost of goods sold			237600	355800	184200	777600
Add:Ending inventory			88950	46050	30600	30,600
total needs			326550	401850	214800	808200
less Beginning inventory			59,400	88,950	46,050	59,400
Required purchases			267,150	312,900	168,750	748,800
2-b)	Schedule of Expected cash disbursement for Merchandise purchase
			January	Feburary	March	Quarter
December purchases			88,425			88,425
january purchases			133575	133575		267150
Feburary purchases				156450	156450	312900
march purchases					84375	84375
total cash disbursement for purchases			222,000	290025	240825	752,850
Accounts payable=		84,375
3)			Cash budget
			January	Feburary	March	Quarter
Beginning cash balance			51,000	30,320	34155	51,000
Add cash collections			288000	435400	535800	1259200
total cash available			339,000	465720	569955	1,310,200
less cash disbursements
purchase of inventory			222,000	290025	240825	752,850
selling and adm expense			123680	139440	116560	379680
purchase of equipment			0	2,100	75,500	77600
cash dividends			45,000	0	0	45,000
total cash disbursement			390,680	431565	432885	1,255,130
Excess(Deficiency) of cash			-51,680	34155	137070	55,070
Financing
Borrowings			82,000	0	0	82,000
Repayments			0	0	-82,000	-82000
interest			0	0	-2,460	-2460
total financing			82,000	0	-84460	-2,460
ending cash balance			30,320	34155	52610	52,610
	interest expense = 82000*1%*3
			2460
4)			income statememt
Sales						1296000
cost of goods sold
Beginning invnetory				59,400
Add purchases				748,800
cost of goods avaialble				808,200
less ending inventory				30,600		777,600
Gross profit						518,400
Selling and administrative exp
Salaries and wages				78,000
Advertising				198,000
shiiping 5% of sales				64800
other expense 3% of sales				38880
Depreciation				43,860		423,540
operating income						94,860
less interest expense						2,460
Net income						92,400
5)		Balance sheet
Asses
current assets
cash						52610
Account receivable						245,600
inventory						30,600
total current assets						328,810
buildings and Equipment (net)						394,740
total assets						723,550
liabilities & stockholders Equity
current liabilities
Accounts payable						84,375
total current liabilities						84,375
Stockholders Equity
common stock						500,000
Retained earnings						139,175
total stockholders equity						639,175
total liabilities & stockholders equity						723,550