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, $24,000 per month: advertising, $64,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $43,540 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 $1,900 cash. During March, other equipment will be purchased for cash at a cost of $74,500. 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 first quarter: 1. Schedule of expected cash collections: Hillyard Company Schedule of Expected Cash Collections January February March $ 78,800 207,200 Quarter Cash sales Credit sales Total collections $ 286,000 2-a. Merchandise purchases budget: March Quarter Hillyard Company Merchandise Purchases Budget January February Budgeted cost of goods sold 236,400* $ 354,600 Add desired ending inventory 88,6507 Total needs 325,050 Less beginning inventory 59,100 Required purchases $ 265,950 *$394,000 sales 60% cost ratio = $236,400. t$354,600 x 25% = $88,650. 2-b. Schedule of expected cash disbursements for merchandise purchases: Hillyard Company Schedule of Expected Cash Disbursements for Merchandise Purchases January February March Quarter December purchases $ 87,825 January purchases 132,975 132,975 February purchases March purchases Total cash disbursements for purchases 4. Prepare an absorption costing income statement for the quarter ending March 31. Hillyard Company Income Statement For the Quarter Ended March 31 Cost of goods sold: Selling and administrative expenses: 5. Prepare a balance sheet as of March 31. Hillyard Company Balance Sheet March 31 Assets Current assets: Total current assets Total assets Liabilities and Stockholders' Equity Current liabilities: Stockholders' equity: Total liabilities and stockholders' equity