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: 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 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 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. The company’s gross margin is 40% of sales. (In other words, cost of goods sold is 60% of sales.) 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. Each month’s ending inventory should equal 25% of the following month’s cost of goods sold. 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. 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. During January, the company will declare and pay $45,000 in cash dividends. 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: Cash budget:

Answer 1

Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you. January $ 392,000 February March Quarter $ 589,000 $ 303,000 $ 1,284,000 April $ Sale 200,000 Requirement 1 January February March Quarter Ending Accounts Receivable Cash Sale Credit Sale 20% 80% $ 78,400 $ $ 205,600 $ 117,800 313,600 $ 60,600 $ $ 471,200 $ 256,800 990,400 $ 242,400 Total Collections $ 284,000 $ 431,400 $ 531,800 $ 1,247,200 Requirement 2a 60% of Sale 120,000 25% Budgeted Cost of Goods sold Add: Desired Ending Inventory Total Needs Less: Beginning Inventory Required Purchase January February March Quarter April $ 235,200 $ 353,400 $ 181,800 $ 770,400 $ $ 88,350 $ 45,450 $ 30,000 $ 30,000 $ 323,550 $ 398,850 $ 211,800 $ 800,400 $ -58,800 $ -88,350 $ -45,450 $ -58,800 $ 264,750 $ 310,500 $ 166,350 $ 741,600 Requirement 2b February January $ 87,225 $ 132,375 December Purchases January Purchase February Purchase March Purchases Total cash disbursment for purchase Beginning Payable 50% of Month Pur 50% of Month Pur 50% of Month Pur $ $ 132,375 155,250 March Quarter Ending Accounts Payable $ 87,225 $ 264,750 $ 155,250 $ 310,500 $ 83,175 $ 83,175 $ $ 238,425 $ 745,650 $ 83,175 83,175 $ 219,600 $ 287,625 Selling and Administrative Budget-Cash Salaries and Wages Advertising Shipping Other Expense Cash Disbursment for Selling and Admin January February March Quarter $ 22,000 $ 22,000 $ 22,000 $ 66,000 $ 62,000 $ 62,000 $ 62,000 $ 186,000 $ 19,600 $ 29,450 $ 15,150 $ 64,200 $ 11,760 $ 17,670 $ 9,090 $ 38,520 $ 115,360 $ 131,120 $ 108,240 $ 354,720 5% of Sale 3% of Sale Cash Budget Beginning Cash Balance Add: Cash Collection January February $ 47,000 $ 30,040 $ 284,000 $ 431,400 March Quarter $ 40,995 $ 47,000 $ 531,800 $ 1,247,200 Total cash Available $ 331,000 $ 461,440 $ 572,795 $ 1,294,200 Less: Cash Disbursment Inventory Purchases Selling and Admin Expense Equipment Purchase Cash Dividends $ $ 219,600 $ 115,360 $ $ 45,000 287,625 $ 238,425 $ 131,120 $ 108,240 $ 1,700 $ 73,500 $ $ 745,650 354,720 75,200 45,000 $ $ $ 379,960 $ 48,960 $ 420,445 $ 420,165 $1,220,570 40,995 $ 152,630 $ 73,630 $ 79,000 Total cash Disbursment Excess/(Deficiency) of cash Financing: Borrowing Repayment of Loan Repayment of Interest Total Financing Ending Cash Balance $79,000*1% 3 $ $ -79,000 $ $ -2,370 $ - $ -81,370 $ 40,995 $ 71,260 $ 79,000 79,000 -2,370 -2,370 71,260 $ $ 79,000 30,040 $ $

Income Statement $ 1,284,000 $ 58,800 $ 741,600 $ 800,400 $ -30,000 $ $ -770,400 513,600 Sales Revenue Less: Cost of Goods Sold Beginning Inventory Add: Purchases Cost of Goods Available for sale Less: Ending Inventory Cost of Goods Sold Gross Margin Less: Selling and Administrative Expense Salaries and Wages Advertising Shipping Other Expense Depreciation Total Selling and Admin Expense Operating Income Less: Interest Expense Net Income $ $ $ $ $ 66,000 186,000 64,200 38,520 43,220 $ -397,940 $ 115,660 $ -2,370 $ 113,290 Balance Sheet Assets Current Assets Cash Accounts Receivable Inventory $ $ $ 71,260 242,400 30,000 Total Curent Assets Building and Equipment, Net $ $ 343,660 388,980 $357,000+Pur-Dep Total Assets $ 732,640 Liabilities Current Liabilities Accounts Payable $ 83,175 Total Liabilities $ 83,175 Stockholder's equity $120,925+Net Income-Dividend Common Stock Retained Earning Total Stockholder's Equity Total Liabilities and Equity $ $ $ $ 500,000 149,465 649,465 732,640