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 $ 43,000 202,400 58,200 353,000 $ 86,025 500,000 70,575 $ 656,600 $ 656,600 b. Actual sales for December and budgeted sales for the next four months are as follows: December (actual) January February March April $ 253,000 $ 388,000 $ 585,000 $ 299,000 $ 196,000 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, $18,000 per month: advertising, $58,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $42,580 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 $1,300 cash. During March, other equipment will be purchased for cash at a cost of $71,500. 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: Using the data above, complete the following statements and schedules for the first quarter: 1. Schedule of expected cash collections: 2-a. Merchandise purchases budget: 2-b. Schedule of expected cash disbursements for merchandise purchases: 3. Cash budget: 4. Prepare an absorption costing income statement for the quarter ending March 31. 5. Prepare a balance sheet as of March 31. 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 $ 77,600 202,400 Total collections $ 280,000 Required 1 Required 2A Required 2B Required 3 Complete the merchandise purchases budget: Budgeted cost of goods sold Add desired ending inventory Total needs Less beginning inventory Required purchases Merchandise Purchases Budget Required 4 Required 5 January February March Quarter $232,800* $ 351,000 87,750t 320,550 58,200 *$388,000 sales 60% cost ratio = $232,800. $351,000 x 25% = $87,750. Complete the schedule of expected cash disbursements for merchandise purchases. Schedule of Expected Cash Disbursements for Merchandise Purchases December purchases January purchases January $ 86,025 February 131,175 131,175 March Quarter February purchases March purchases Total cash disbursements for purchases Hillyard Company Cash Budget January February March Quarter Beginning cash balance $ 43,000 Add collections from customers 280,000 Total cash available Less cash disbursements: Inventory purchases 217,200 Selling and administrative expenses 107,040 Equipment purchases Cash dividends Total cash disbursements 45,000 369,240 Excess (deficiency) of cash Financing: Borrowings Repayments Interest Total financing Ending cash balance Cost of goods sold: Hillyard Company Income Statement For the Quarter Ended March 31 Selling and administrative expenses: Current assets: Total current assets Total assets Current liabilities: Hillyard Company Balance Sheet March 31 Assets Liabilities and Stockholders' Equity Stockholders' equity: Total liabilities and stockholders' equity