Hillyard Company, an office supplies specialty store, gathered the following information to prepare its master budget for the first quarter of the year:

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

Debits Credits

Cash $ $40,000$

Accounts receivable $200,000$

Inventory $57,750$

Buildings and equipment $($net$)350,000$

Accounts payable $ $85,125$

Common stock $500,000$

Retained earnings $62,625$

$ $647,750$ $ $647,750$

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

December$($actual$)$

$ $250,000$

January

$ $385,000$

February

$ $582,000$

March

$ $296,000$

April

$ $193,000$

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.

The company$$s 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, $$15,000$ per month; advertising, $$55,000$ per month; shipping, $5\%$ of sales; other expenses, $3\%$ of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $$42,100$ for the quarter.

Each month$$s ending inventory should equal $25\%$ of the following month$$s cost of goods sold.

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.

During February, the company will purchase a new copy machine for $$1,000$ cash. During March, other equipment will be purchased for cash at a cost of $$70,000.$

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

Management wants to maintain a minimum cash balance of $$30,000.$ The company has an agreement with a local bank allowing it to borrow in increments of $$1,000$ at the beginning of each month. The interest rate on these loans is $1\%$ per month, and for simplicity, we will assume 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:

$4.$ Prepare an absorption costing income statement for the quarter ending March $31.$