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 companys general ledger showed the following account balances: Cash $ 61,000 Accounts receivable 216,800 Inventory 60,900 Buildings and equipment (net) 371,000 Accounts payable $ 91,425 Common stock 500,000 Retained earnings 118,275 $ 709,700 $ 709,700 b. Actual sales for December and budgeted sales for the next four months are as follows: December(actual) $271,000 January $406,000 February $603,000 March $318,000 April $214,000 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 companys 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, $36,000 per month: advertising, $60,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $45,460 for the quarter. f. Each months ending inventory should equal 25% of the following months cost of goods sold. g. One-half of a months 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 $3,100 cash. During March, other equipment will be purchased for cash at a cost of $80,500. 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. 1. Cash budget. (Cash deficiency, repayments and interest should be indicated by a minus sign.) January February March Quarter Beginning cash balance $61,000 $61,000 Add cash collections 298,000 445,400 546,000 1,289,400 Total cash available 359,000 445,400 546,000 1,350,400 Less cash disbursements: Purchases of inventory 228,000 296,100 247,125 771,225 Selling and administrative expenses 128,480 144,240 121,440 394,160 Purchases of equipment 3,100 80,500 83,600 Cash dividends 45,000 0 0 45,000 Total cash disbursements 401,480 443,440 449,065 1,293,985 Excess (deficiency) of cash (42,480) 1,960 96,935 56,415 Financing: Borrowings Repayments Interest Total financing Ending cash balance 2. Prepare an absorption costing income statement for the quarter ending March 31. Hillyard Company Income Statement For the Quarter Ended March 31 Sales $1,327,000 Cost of goods sold: 0 0 0 Selling and administrative expenses: Advertising 180,000 Salaries and wages 108,000 Shipping 66,350 Other expenses 39,810 Depreciation 45,460 439,620 Net operating income Interest expense Net income