928 Completing a Master Budget [LO2, LO4, LO7, LO8, LO9, LO10] Hillyard Company, an offi ce 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 fi rst quarter: a. As of December 31 (the end of the prior quarter), the companys general ledger showed the following account balances: Debits Credits Cash . . . . . . . . . . . . . . . . . . . . . . . . $ 48,000 Accounts receivable . . . . . . . . . . . . 224,000 Inventory . . . . . . . . . . . . . . . . . . . . . 60,000 Buildings and equipment (net) . . . . 370,000 Accounts payable . . . . . . . . . . . . . . $ 93,000 Capital stock . . . . . . . . . . . . . . . . . 500,000 Retained earnings . . . . . . . . . . . . . . 109,000 $702,000 $702,000 b. 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 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 companys 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, $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. f. Each months ending inventory should equal 25% of the following months cost of goods sold. g. One-half of a months 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 $1,700 cash. During March, other equipment will be purchased for cash at a cost of $84,500. 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. Required: Using the data above, complete the following statements and schedules for the fi rst quarter: 1. Schedule of expected cash collections: January February March Quarter Cash sales . . . . . . . . . . . . . . . . . . . $ 80,000 Credit sales . . . . . . . . . . . . . . . . . . 224,000 Total cash collections . . . . . . . . . . . $304,000 2. a. Merchandise purchases budget: Budgeted cost of goods sold . . . . . $240,000* $360,000 Add desired ending inventory. . . . . 90,000 Total needs . . . . . . . . . . . . . . . . . . . 330,000 Less beginning inventory . . . . . . . . 60,000 Required purchases . . . . . . . . . . . . $270,000 **$400,000 sales _ 60% cost ratio _ $240,000. $360,000 _ 25% _ $90,000. c. Schedule of expected cash disbursements for merchandise purchases: January February March Quarter December purchases . . . . . . . . . . . $ 93,000 $ 93,000 January purchases . . . . . . . . . . . . . 135,000 135,000 270,000 February purchases . . . . . . . . . . . . March purchases . . . . . . . . . . . . . . Total cash disbursements for purchases . . . . . . . . . . . . . . . $228,000 3. Schedule of expected cash disbursements for selling and administrative expenses: January February March Quarter Salaries and wages . . . . . . . . . . . . . . . . . $ 27,000 Advertising . . . . . . . . . . . . . . . . . . . . . . . . 70,000 Shipping . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 Other expenses . . . . . . . . . . . . . . . . . . . . 12,000 Total cash disbursements for selling and administrative expenses . . . $129,000 4. Cash budget: January February March Quarter Cash balance, beginning . . . . . . . . $ 48,000 Add cash collections . . . . . . . . . . . 304,000 Total cash available . . . . . . . . . . . . 352,000 Less cash disbursements: Purchases of inventory . . . . . . . 228,000 Selling and administrative expenses . . . . . . . . . . . . . . . . 129,000 Purchases of equipment . . . . . . Cash dividends . . . . . . . . . . . . . . 45,000 Total cash disbursements . . . . . . . 402,000 Excess (defi ciency) of cash . . . . . . (50,000) Financing: Etc. 5. Prepare an absorption costing income statement for the quarter ending March 31 as shown in Schedule 9 in the chapter. 6. Prepare a balance sheet as of March 31