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:

	debits	credits
cash	$44,000
accounts receivable	$203,200
inventory	$58,350
buildings and equipment(net)	$354,000
accounts payable		$86,325
common stock		$500,000
retained earnings		$73,225
	$659,550	$659,550

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

December(actual)	$254,000
January	$389,000
February	$586,000
March	$300,000
April	$197,000

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,$19,000 per month; advertising ,$59,000 per month;shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $42,740 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 $1400 cash. during March, other equipment will be purchased for cash at a cost of $72,000

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 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	Quarter
cash sales	$77,800
credit sales	$203,200
total collections	$281,000

2-a, merchandise purchases budget

Hillyard company
merchandise purchases budget
	January	February	March	Quarter
budgeted cost of goods sold	233,400	351,600
add desired ending inventory	87,900
total needs	321,300
less beginning inventory	58,350
required purchases	262,950

389,000 sales* 60%=233,400; 351,600*25%=87,900

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	86,325
January purchases	131,475	131,475
February purchases
March purchases
total cash disbursements for purchases

3. cash budget(cash deficiency, repayments and interest should be indicated by a minus sign)

Hillyard company
cash budget
	January	February	March	Quarter
beginning cash balance	44,000
add cash collections	281,000
total available	325,000
less cash disbursements:
purchases of inventory	217,800
selling and administrative expenses	109,120
purchases of equipment
cash dividends	45,000
total cash disbursements	371,920
excess(deficiency) of cash	(46,920)
financing:
borrowings
repayments
interest
total financing
ending cash balance

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