a.	As of December 31 (the end of the prior quarter), the companys balance sheet showed the following account balances:
	Cash			$6,300
	Accounts receivable			$38,200
	Inventory			$10,700
	Buildings and equipment (net)			$118,500
	Accounts payable				$34,000
	Common stock				$106,100
	Retained earnings				$33,600
				$173,700	$173,700
b.	Actual and budgeted sales are as follows:
	December (actual)	$66,400
	January	$76,000
	February	$84,800
	March	$84,800
	April	$55,200
c.	Sales are 40% for cash and 60% on credit. All payments on credit sales are collected in the month following the sale. The accounts receivable at December 31 are a result of December credit sales.
d.	The companys gross margin percentage is 30% of sales. (In other words, cost of goods sold is 70% of sales.)
e.	Each months ending inventory should equal 25% of the following month's budgeted cost of goods sold.
f.	One-quarter of a months inventory purchases is paid for in the month of purchase; the other three-quarters is paid for in the following month. The accounts payable at December 31 are the result of December purchases of inventory.
g.	Monthly expenses are as follows: commissions, 15% of sales; rent, $2,650; other expenses (excluding depreciation), 8% of sales. Assume that these expenses are paid monthly. Depreciation is $2,350 for the quarter and includes depreciation on new assets acquired during the quarter.
h.	Equipment will be acquired for cash: $3,750 in January and $8,550 in February.
i.	Management would like to maintain a minimum cash balance of $5,000 at the end of each month. 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, up to a total loan balance of $50,000. The interest rate on these loans is 1% per month, and for simplicity, we will assume that interest is not compounded. Accumulated interest on any amounts borrowed must be paid at the end of the quarter. Also, to the extent it is able (i.e., while maintaining the minimum cash requirement), the company must repay any outstanding loans 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:

January

February

March

Total

Cash sales

$30,400

Credit sales

$38,200

Total collections

$68,600

2a.

Merchandise purchases budget:

January

February

March

Total

Budgeted cost of goods

$53,200

*

$59,360

Add desired ending inventory

$14,840

Total needs

$68,040

Less beginning inventory

$10,700

Required purchases

$57,340

*$76,000 sales 70% = $53,200

$84,800 70% 25% = $14,840

2b.

Schedule of expected cash disbursements for merchandise purchases:

January

February

March

Total

December purchases

$34,000

*

$34,000

January purchases

$14,335

$43,005

$57,340

February purchases

$0

March purchases

$0

Total cash disbursements for purchases

$48,335

*Beginning balance of the accounts payable.

3.

Schedule of expected cash disbursements for selling and administrative expenses:

January

February

March

Total

Commissions

$11,400

Rent

$2,650

Other expenses

$6,080

Total cash disbursements for selling and administrative expenses

$20,130

4.

Cash budget:

January

February

March

Total

Cash balance, beginning

$6,300

Add cash collections

$68,600

Total cash available

$74,900

Less cash disbursements:

For inventory

$48,335

For operating expenses

$20,130

For equipment

$3,750

Total cash disbursements

$72,215

Excess (deficiency) of cash

$2,685

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.