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:

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

	Debit				Credit
Cash	$	48,000
Accounts receivable		206,400
Inventory		58,950
Buildings and equipment (net)		358,000
Accounts payable					$	87,525
Common stock						500,000
Retained earnings						83,825
	$	671,350			$	671,350

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

December(actual)	$	258,000
January	$	393,000
February	$	590,000
March	$	304,000
April	$	201,000

3. 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.
4. The companys gross margin is 40% of sales. (In other words, cost of goods sold is 60% of sales.)
5. Monthly expenses are budgeted as follows: salaries and wages, $23,000 per month: advertising, $63,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $43,380 for the quarter.
6. Each months ending inventory should equal 25% of the following months cost of goods sold.
7. One-half of a months inventory purchases is paid for in the month of purchase; the other half is paid in the following month.
8. During February, the company will purchase a new copy machine for $1,800 cash. During March, other equipment will be purchased for cash at a cost of $74,000.
9. During January, the company will declare and pay $45,000 in cash dividends.
10. 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.

Required:

Using the data above, complete the following statements and schedules for the first quarter:

1. Schedule of expected cash collections:

Required:

Using the data above, complete the following statements and schedules for the first quarter:

1. Schedule of expected cash collections:

Schedule of Expected Cash Collections
	January	February	March	Quarter
Cash sales	$78,600			$78,600
Credit sales	206,400			206,400
Total collections	$285,000	$0	$0	$285,000

2-a. Merchandise purchases budget:

Merchandise Purchases Budget
	January	February	March	Quarter
Budgeted cost of goods sold	235,800*	$354,000
Add desired ending inventory	88,500
Total needs	324,300
Less beginning inventory	58,950
Required purchases	$265,350

*$393,000 sales 60% cost ratio = $235,800.

$354,000 25% = $88,500.

2-b. Schedule of expected cash disbursements for merchandise purchases:

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

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

5. Prepare a balance sheet as of March 31