Case (30 pts): Completing a Master Budget.

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:

As of December 31 (the end of the prior quarter), the companys general ledger showed the following account balances:

Accounts	Debits	Credits
Cash	$48,000
Accounts Receivable	224,000
Inventory	60,000
Buildings and equipment (net)	370,000
Accounts payable		$93,000
Common stock		500,000
Retained earnings		109,000
	702,000	702,000

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

Period	Amounts
December (actual)	$280,000
January	$400,000
February	$600,000
March	$300,000
April	$200,000

Sales are 20% for cash and 80% on credit. All payment on credit sales are collected in the month following sale. The accounts receivable at December 31 are a result of December credit sales.

The companys gross margin is 40% of sales. (In other words, cost of goods sold is 60% of sales.)

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 of new assets acquired during the quarter will be $42,000 for the quarter.

Each months ending inventory should equal 25% of the following months cost of goods sold.

One half of a months inventory purchases is paid for in the month of purchase; the other half is paid in the following month.

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.

During January, the company will declare and pay $45,000 in cash dividends.

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 the 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:

Schedule of expected cash collections (6 pts):

	January	February	March	Quarter
Cash sales	$80,000
Credit sales	224,000
Total cash collections	$304,000

Merchandise purchases budget (6 pts):

	January	February	March	Quarter
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

Schedule of expected cash disbursements for merchandise purchases (5 pts):

	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

Cash budget (13 pts):

	January	February	March	Quarter
Beginning cash balance
Add: cash collections
Total cash available
Less: cash disbursements
Purchases of inventory
Selling and administrative expenses
Purchases of equipment
Cash dividends
Total cash disbursements
Excess (deficiency) of cash
Financing
Borrowings
Repayments
Interest
Total Financing
Ending cash balance