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: Cash Accounts receivable Inventory Buildings and equipment (net). Accounts payable Common stock Retained earnings $ 56,000 212,800 60,150 366,000 $ 89,925 500,000 105,025 $ 694,950 $ 694,950 b. Actual sales for December and budgeted sales for the next four months are as follows: January December(actual) $ 266,000 $ 401,000 $ 598,000 $ 313,000 February March: April $ 209,000 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, $31,000 per month: advertising, $65,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $44,660 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 $2,600 cash. During March, other equipment will be purchased for cash at a cost of $78,000. 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 plus accumulated interest at the end of the quarter. Required 1 Required 2A Required 2B Required 3 Required 4 Required 5 Complete the Schedule of expected cash collections: Schedule of Expected Cash Collections January February March Quarter Cash sales Credit sales $ 80,200 $ 80,200 212,800 212,800 Total collections $ 293,000 $ 0 $ 0 $ 293,000 Required 1 Required 2A Required 2B Required 3 Required 4 Required 5 Complete the merchandise purchases budget: Merchandise Purchases Budget January February March Quarter Budgeted cost of goods sold $240,600 $ 358,800 Add desired ending inventory 89,700+ Total needs 330,300 358,800 0 0 Less beginning inventory 60,150 $ 270,150 $ 358,800 $ 0 $ 0 Required purchases *$401,000 sales x 60% cost ratio = $240,600. 1$358,800 x 25% = $89,700. Required 1 Required 2A Required 2B Required 3 Required 4 Required 5 Complete the schedule of expected cash disbursements for merchandise purchases. Schedule of Expected Cash Disbursements for Merchandise Purchases January February December purchases $ 89,925 January purchases 135,075 135,075 March Quarter $ 89,925 270,150 February purchases 0 March purchases 0 Total cash disbursements for purchases $225,000 $ 135,075 $ 0 $ 360,075 Required 1 Required 2A Required 2B Required 3 Required 4 Required 5 Complete the 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 $ 56,000 Add collections from customers 293,000 Total cash available 349,000 0 0 0 Less cash disbursements: Inventory purchases 225,000 Selling and administrative expenses 128,080 Equipment purchases Cash dividends 45,000 Total cash disbursements 398,080 0 0 0 Excess (deficiency) of cash (49,080) 0 0 0 Financing: Borrowings Repayments Interest Total financing 0 0 0 Ending cash balance $ (49,080) $ 0 $ 0 $ 0 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: 0 0 0 69 $ 0 0 0 Prepare a balance sheet as of March 31. Hillyard Company Balance Sheet March 31 Assets Current assets: Total current assets Total assets Current liabilities: Liabilities and Stockholders' Equity Stockholders' equity: 0 $ 0 Total liabilities and stockholders' equity $ SA 0 0