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	$	48,000
Accounts receivable		224,000
Inventory		60,000
Buildings and equipment (net)		370,000
Accounts payable			$	93,000
Common stock				500,000
Retained earnings				109,000
	$	702,000	$	702,000

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

December(actual)	$	280,000
January	$	400,000
February	$	600,000
March	$	300,000
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, $27,000 per month: advertising, $70,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $42,000 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 $84,500.

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.

Prepare a balance sheet as of March 31.

Prepare a balance sheet as of March 31.

	Hillyard Company Balance Sheet March 31 Assets Current assets: Total current assets 1,274,000 Total assets $1,274,000 Liabilities and Stockholders’ Equity Current liabilities: Stockholders' equity: 0 Total liabilities and stockholders’ equity $0

Answer 1

	Hillyard Company
	January	February	March	Quarter
Sales	$          4,00,000.00	$        6,00,000.00	$    3,00,000.00	$           13,00,000.00
	Hillyard Company
	Schedule of Expected cash collection
	January	February	March	Quarter
Cash Sales	$              80,000.00	$        1,20,000.00	$        60,000.00	$             2,60,000.00
Credit Sales	$          2,24,000.00	$        3,20,000.00	$    4,80,000.00	$           10,24,000.00
Total Cash collection	$          3,04,000.00	$        4,40,000.00	$    5,40,000.00	$           12,84,000.00
	January	February	March
Cash Sales	400000*20%	600000*20%	300000*20%
Credit Sales	400000*80%	600000*80%	300000*80%
	Cost of goods sold
January	400000*60%=	$        2,40,000.00
February	6000000*60%	$        3,60,000.00
March	300000*60%=	$        1,80,000.00
April	200000*60%	$        1,20,000.00
	Schedule of Merchandise Purchase Budget
	January	February	March	Quarter
Cost of goods sold=(I)	$          2,40,000.00	$        3,60,000.00	$    1,80,000.00	$             7,80,000.00
Add: Ending Inventory=(II)	$              90,000.00	$            45,000.00	$        30,000.00	$                 30,000.00
Total needs=(i)+(II)	$          3,30,000.00	$        4,05,000.00	$    2,10,000.00	$             8,10,000.00
Beginning Inventory	$              60,000.00	$            90,000.00	$        45,000.00	$                 60,000.00
Required Purchases	$          2,70,000.00	$        3,15,000.00	$    1,65,000.00	$             7,50,000.00
Required Purchases=Cost of goods sold+Ending Inventory-Beginning Inventory
Closing Stock
January	360000*25%
February	180000*25%
March	120000*25%
Schedule of expected cash disbursement of merchandise Purchase
	January	February	March	Quarter
Accounts Payable	$              93,000.00			$                 93,000.00
January Purchase 1/2 in Jan, 1/2 in February	$          1,35,000.00	$        1,35,000.00		$             2,70,000.00
February Purchases 1/2 in Feb,1/2 in Mar		$        1,57,500.00	$    1,57,500.00	$             3,15,000.00
March Purchases=1/2 in March			$        82,500.00	$                 82,500.00
Payment for merchandise purchased	$          2,28,000.00	$        2,92,500.00	$    2,40,000.00	$             7,60,500.00
Schedule of cash disbursement for Selling & Administrative expenses
	January	February	March	Quarter
Salaries & Wages	$              27,000.00	$            27,000.00	$        27,000.00	$                 81,000.00
Advertising	$              70,000.00	$            70,000.00	$        70,000.00	$             2,10,000.00
Shipping	$              20,000.00	$            30,000.00	$        15,000.00	$                 65,000.00
Other Expenses	$              12,000.00	$            18,000.00	$          9,000.00	$                 39,000.00
Total cash payment for Selling & Administrative expenses	$          1,29,000.00	$        1,45,000.00	$    1,21,000.00	$             3,95,000.00
Calculation of Shipping and Other Expenses
	January	February	March
Shipping Expenses	400000*5%	600000*5%	300000*5%
Other Expenses	400000*3%	600000*3%	300000*3%
Hillyard Company
For the three months ending March 31
Months	January	February	March	Quarter
Cash Balance	$              48,000.00	$            30,000.00	$        30,800.00	$                 48,000.00
Add: Collections from customer	$          3,04,000.00	$        4,40,000.00	$    5,40,000.00	$           12,84,000.00
Total Cash available	$          3,52,000.00	$        4,70,000.00	$    5,70,800.00	$           13,32,000.00
Less: Disbursement
Merchandise Purchase	$          2,28,000.00	$        2,92,500.00	$    2,40,000.00	$             7,60,500.00
Selling & Administrative expenses	$          1,29,000.00	$        1,45,000.00	$    1,21,000.00	$             3,95,000.00
Equipment Purchase		$              1,700.00	$        84,500.00	$                 86,200.00
Cash dividend	$              45,000.00			$                 45,000.00
Total Disbursement	$          4,02,000.00	$        4,39,200.00	$    4,45,500.00	$           12,86,700.00
Excess/Deficiency of receipts over disbursement	$            (50,000.00)	$            30,800.00	$    1,25,300.00	$                 45,300.00
Financing:
Borrowings	$              80,000.00			$                 80,000.00
Repayments			$      (80,000.00)	$              (80,000.00)
Interest			$        (2,400.00)	$                 (2,400.00)
Total Financing	$              80,000.00		$      (82,400.00)	$                 (2,400.00)
Cash Balance ,ending	$              30,000.00	$            30,800.00	$        42,900.00	$                 42,900.00
(Interest=$80000*1%*3)
Hillyard Company
Income Statement
Sales		$      13,00,000.00
Cost of goods sold		$      -7,80,000.00
Gross Margin		$        5,20,000.00
Selling & Administrative Expenses
Salaries & Wages	$              81,000.00
Advertisement	$          2,10,000.00
Shipping	$              65,000.00
Depreciation(given)	$              42,000.00
Other Expenses	$              39,000.00	$        4,37,000.00
Net operating Income		$            83,000.00
Less: Interest Expense		$            (2,400.00)
Net Income		$            80,600.00
Cost of goods sold=Beginning Inventory+Purchases-Ending Inventory=($60000+$750000-$30000)
Hillyard Company
Balance Sheet as at March 31
	Balance Sheet
Cash	$              42,900.00
Accounts Receivable	$          2,40,000.00
Inventory	$              30,000.00
Total Current Assets	$          3,12,900.00
Building & Equipment net	$          4,14,200.00
Total Assets	$          7,27,100.00
Liabilities & Stockholder's Equity
Accounts Payable	$              82,500.00
Stockholder's Equity			-
Common Stock	$          5,00,000.00
Retained Earnings	$          1,44,600.00
Total Liabilities & Stockholder's Equity	$          7,27,100.00
Retained Earnings
Beginning balance	$          1,09,000.00
Add: Net Income	$              80,600.00
Less: Dividend Paid	$            -45,000.00
Ending Retained Earnings	$          1,44,600.00
Accounts Receivable	($300000*80%)
Building & Equipment net	($370000+$1700+$84500-$42000)
Accounts Payable	($165000*1/2)