Hancock Company, a merchandising company, prepares its master budget on a quarterly basis. The following data have been assembled to assist in preparation of the master budget for the second quarter.

a. As of December 31 (the end of the prior quarter), the companys balance sheet showed the following account balances:

Cash	$ 6,700
Accounts receivable	36,900
Inventory	11,130
Buildings and equipment (net)	120,000
Accounts payable			$ 32,880
Common stock			100,000
Retained earnings			41,850
	$174,730		$174,730

b. Actual and budgeted sales are as follows:

December (actual)	$61,500
January	$79,500
February	$88,800
March	$89,400
April	$58,100

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 20% 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 are 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, $12,150; rent, $2,650; other expenses (excluding depreciation), 8% of sales. Assume that these expenses are paid monthly. Depreciation is $2,550 for the quarter and includes depreciation on new assets acquired during the quarter.

h. Equipment will be acquired for cash: $3,830 in January and $8,100 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. 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 second quarter:

1. Schedule of expected cash collections:

	January		February	March	Total
Cash sales	$31,800.00
Credit sales	36,900.00
Total collections	$68,700.00

2. a. Merchandise purchases budget:

	January		February	March	Total
Budgeted cost of goods	$55,650.00	*	$62,160.00
Add desired ending inventory	12,432.00
Total needs	68,082.00
Less beginning inventory	11,130.00
Required purchases	$56,952.00
*$79,500.00 sales 70% = $55,650.00.
$88,800.00 70% 20% = $12,432.00.

b. Schedule of expected cash disbursements for merchandise purchases:

	January		February	March	Total
December purchases	$32,880.00	*			$32,880.00
January purchases	14,238.00		$42,714.00		56,952.00
February purchases	0.00
March purchases	0.00
Total cash disbursements for purchases	$47,118.00
*Beginning balance of the accounts payable.

3. Schedule of expected cash disbursements for selling and administrative expenses:

	January	February	March	Total
Commissions	$12,150.00
Rent	2,650.00
Other expenses	6,360.00
Total cash disbursements for selling and administrative expenses	$21,160.00

4. Cash budget:

	January	February	March	Total
Cash balance, beginning	$ 6,700.00
Add cash collections	68,700.00
Total cash available	75,400.00
Less cash disbursements:
For inventory	47,118.00
For operating expenses	21,160.00
For equipment	3,830.00
Total cash disbursements	72,108.00
Excess (deficiency) of cash	3,292.00
Financing
Etc.

5. Prepare an income statement for the quarter ending March 31 as shown in Chapter 7.

6. Prepare a balance sheet as of March 31.