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	$	58,000
Accounts receivable		214,400
Inventory		60,450
Buildings and equipment (net)		368,000
Accounts payable			$	90,525
Common stock				500,000
Retained earnings				110,325
	$	700,850	$	700,850

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

December(actual)	$	268,000
January	$	403,000
February	$	600,000
March	$	315,000
April	$	211,000

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, $33,000 per month: advertising, $63,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $44,980 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 $2,800 cash. During March, other equipment will be purchased for cash at a cost of $79,000.

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

Budgeted Sales	268000	403000	600000	315000	211000
Credit Sales	214400	322400	480000	252000	168800
COGS	160800	241800	360000	189000	126600
	Schedule of Expected Cash Collection
		Jan	Feb	March	Total
	Cash Sales (20%)	80600	120000	63000	263600
	Collection from Credit Sales of previous month	214400	322400	480000	1016800
		295000	442400	543000	1280400
	Merchandise Purchase Budget
		Jan	Feb	March	Total
	Opening Inventory	60450	90000	47250	197700
	Requirment for the month	241800	360000	189000	790800
	Closing Inventory	90000	47250	31650	168900
	Total Purchase	271350	317250	173400	762000
	Schedule of Expected Cash disbursement for purchase of merchandise
		Jan	Feb	March	Total
	Paid in Current Month	135675	158625	86700	381000
	Paid in next month	90525	135675	158625	384825
		226200	294300	245325	765825
	Cash Budget
		Jan	Feb	March	Total
	Opening Cash Balance	58000	30560	31860
	Collection from Sales	295000	442400	543000	1280400
	-Payment for Merchandise	-226200	-294300	-245325	-765825
	-Salary Wages	-33000	-33000	-33000	-99000
	-Advertising	-63000	-63000	-63000	-189000
	-Shipping - 5%of sales	-20150	-30000	-15750	-65900
	-other Expenses - 3% of sales	-12090	-18000	-9450	-39540
	-Copying machine		-2800		-2800
	-Equipment			-79000	-79000
	-Dividend	-45000			-45000
		-46440	31860	129335	114755
	Loan	77000	-
	Loan and Interest Repayment			-79310
	Closing Balance	30560	31860	50025