Question

a. As of December 31 (the end of the prior quarter), the company's general ledger showed the following account balances: Cash Accounts receivable Inventory Buildings and equipment (net) Accounts payable Common stock Retained earnings 64,989 219, 280 61,350 374, $ 92,325 see, e 126,225 718,550 $ 718,550 $ b. Actual sales for December and budgeted sales for the next four months are as follows: December (actual) January February March April $ 274,000 $ 499,000 $ 606,000 $ 321,989 $ 217.eee or 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. (In other words, cost of goods sold is 60% of sales.) e. Monthly expenses are budgeted as follows: salaries and wages, $39.000 per month: advertising. $57,000 per month; shipping. 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $45.940 for the quarter. f. Each month's ending inventory should equal 25% of the following month's cost of goods sold. g. 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. h. During February, the company will purchase a new copy machine for $3,400 cash. During March, other equipment will be purchased for cash at a cost of $82,000. i. During January, the company will declare and pay $45.000 in cash dividends. j. 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.

Answer 1

Required Budgets are as prepared below:

Hillyard Company
Cash Budget
For the quarter ended March 31
	Month
Particulars	January	February	March	Total
Beginning Cash balance	64,000	30,480	33,100	64,000
Add: Collection from customers	$301,000	$448,400	$549,000	1,298,400
cash available for use	$365,000	$478,880	$582,100	$1,362,400
Less: cash Disbursements
Merchandise purchase	$229,800	$297,900	$248,925	776,625
Salaries and wages	39,000	39,000	39,000	117,000
Advertising	57,000	57,000	57,000	171,000
Shipping (5% of sales)	20,450	30,300	16,050	66,800
Other exp (3% of sales)	12,270	18,180	9,630	40,080
New Copy machine	0	3,400	0	3,400
Equipment purchase		0	82,000	82,000
Dividend paid	45,000			45000
Total disbusrement	403,520	445,780	452,605	1,301,905
Cash surplus/Deficit	-38,520	33,100	129,495	60,495
Financing
Borrowing	69,000			69,000
Repayment			-69,000	-69,000
Interest			-1380	-1,380
Net cash from Financing	69,000	0	-70,380	-1,380
Budgeted ending cash balance	30,480	33,100	59,115	59,115
Hillyard Company
Budgeted Income Statement
For the quarter ended March 31
Particulars	Amount ($)	Amount ($)
Sales		1,336,000
Less: Cost of goods sold (60% of sales)		801,600
Gross margin		534,400
Less: Selling and administrative exp
Depreciation	45,940
Salaries and wages	117,000
Advertising	171,000
Shipping Charges	66,800
Other expenses	40,080	440,820
Net Operating Income		93,580
Interest expense		1,380
Net Income		92,200
Dividend Paid		45,000
Net Income		47,200
Hillyard Company
Budgeted Balance Sheet
Mar-31
Assets
Cash	59,115
Accounts Receivable	256,800
Inventory	32,550
Property and equipment Net	413,460
Total assets	761,925
Liabilities and Stockholders' Equity
Accounts Payable purchases	88,500
Common Stock	500,000
Retained earnings	173,425
Total liabilities and stockholders' equity	761,925