Question

Hilyard 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. a. As of December 31 (the end of the prior quarter), the company's general ledger showed the following account balances: 5 Cash Accounts receivable Inventory Buildings and equipment (net) Accounts payable Common stock Retained earnings 52.609 209,600 59,550 362,000 $ 38,725 500.000 94,425 683,150 $633.150 $ b. Actual sales for December and budgeted sales for the next four months are as follows: December (actual) January February March April 5 262,000 $ 397,000 $ 594,000 $ 305, $ 205,000 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. In other words, cost of goods sold is 60% of sales.) e. Monthly expenses are budgeted as follows: salaries and wages, $27.000 per month: advertising, S67,000 per month, shipping. 5% of sales, other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter will be $44,020 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 $2.200 cash. During March, other equipment will be purchased for cash at a cost of $76.000. 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

Calculation Jan Feb Mar Feb 594,000 Mar 308,000 Quarter 1,299,000 Hillyard Co Schedule of expected cash collections Req1 Jan Sales 397,000 Cash collections Cash sales 79,400 Credit sales 209,600 Total cash collections 289,000 =397,000*20% 118,800 317,600 436,400 61,600 475,200 536,800 259,800 1,002,400 1,262,200 =594,000*20% =397,000*80% =308,000*20% =594,000*80% Merchandise Purchase budget Req 2a Jan Budgeted Cost of Goods Sold 238,200 Add Desired Ending Inventory 89,100 Total Needs 327,300 Less Beginning Inventory 59,550 Required Purchases 267,750 Jan =397,000*60% =356,400*20% Feb =594,000*60% =184,800*20% Mar =308,000*60% =205,000*60%*25% Feb Mar 356,400 184,800 46,200 30,750 402,600 215,550 89,100 46,200 313,500 169,350 Quarter 779,400 30,750 810,150 59,550 750,600 End Inv of Jan End Inv of Feb Jan Feb Mar Schedule of expected cash disbursements-Purchases Reg 2b Jan Feb Mar Dec purchases - Accts Payable 88,725 Jan Purchases 133,875 133,875 Feb Purchases 156,750 156,750 Mar Purchases 84,675 Total payments for purchases 222,600 290,625 241,425 =267,750/2 Quarter 88,725 267,750 313,500 84,675 754,650 =267,750/2 =313,500/2 =313,500/2 =169,350/2 Jan Feb Mar Jan 52,000 289,000 341,000 Feb Mar 30,640 32,695 436,400 536,800 467,040 569,495 Quarter 52,000 1,262,200 1,314,200 222,600 125,760 290,625 141,520 2,200 241,425 118,640 76,000 = 27,000+67,000+(397,000*(5%+3%)) =27,000+67,000+(594,000*(5%+3%)) = 27,000+67,000+(308,000*(5%+3%)) Cash budget Req3 Cash balance, beginning Add Cash collections Total cash available Less cash disbursements Inventory Purchases Selling & admin expenses Equipment purchases Dividends Total Cash disbursements Excess (deficiency) of cash Financing Borrowings Repayments Interest at 1% per month Total financing Cash balance, ending 754,650 385,920 78,200 45,000 1,263,770 50,430 45,000 393,360 (52,360) 434,345 32,695 436,065 133,430 83,000 83,000 =53,000+30,000 (83,000) Round off deficiency of $52,360 to $53,000 for borrowings calculation (2,490) (2,490) 47,940 (83,000) (2,490) (85,490) 47,940 =83,000*1%*3 83,000 30,640 32,695

1,299,000 779,400 519,600 Income Statement Req4 Sales Cost of goods sold Beginning Inventory 59,550 Purchases 750,600 Less Closing Inventory (30,750) Cost of goods sold Gross Margin Selling & Admin expenses Advertising 201,000 Salaries and wages 81,000 Shipping 64,950 Depreciation 44,020 Other expenses 38,970 Total Selling & Admin expenses Net Operating income Interest expense Net income =67,000*3 =27,000*3 =1,299,000*5% =1,299,000*3% 429,940 89,660 2,490 87,170 Balance Sheet Req5 Assets Cash Accounts Receivable Inventory Total current assets Buildings & Equipment, net Total Assets 47,940 246,400 30,750 =308,000*80% 325,090 396,180 721,270 =362,000+78,200-44,020 84,675 =169,350/2 84,675 Liabilities & Equity Current Liabilties Accounts Payable Total Current Liabilties Stockholders Equity Common Stock Retained Earnings Total Stockholders Equity Total Liabilities & Equity 500,000 136,595 =94,425+87,170-45,000 636,595 721,270