Exercise $2(50$ points$)$

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. a$.$ As of December $31($the end of the prior quarter$),$ the company's general ledger showed the following account balances:

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

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. $$27,000$ per month: advertising, $$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 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 $$1,700$ cash. During March, other equipment will be purchased for cash at a cost of $$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.

Using the data above, prepare the following for the first quarter and the total:

$-1.$ Schedule of expected cash collections $(7$ points$)$

$2.$ a$.$ Merchandise purchases budget $(5$ points$)$

b$.$ Schedule of expected cash disbursements for merchandise purchases $(5$ points$)$

$3.$ Cash budget $(15$ points$)$

$4.$ Prepare an absorption costing income statement for the quarter ending March $31.(9$ points$)$

$5.$ Prepare a balance sheet as of March $31.(9$ points$)$