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 48,000 224,000 60,000 370,000 $ 93,000 500,000 109,000 702,000 $ 702,000 $ b. Actual sales for December and budgeted sales for the next four months are as follows: December (actual) January February March April $ 280,000 $ 400,000 $ 600,000 $ 300,000 $ 200,000 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, $27,000 per month: advertising, $70,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $42,000 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 $1,700 cash. During March, other equipment will be purchased for cash at a cost of $84,500. 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 1 Required 2A Required 2B Required 3 Required 4 Required 5 Complete the merchandise purchases budget. March $ 180,000 30,000 Quarter $ 780,000 165,000 Merchandise Purchases Budget January February $ Budgeted cost of goods sold 240,000 $360,000 Add desired ending inventory 90,000+ 45,000 Total needs 330,000 405,000 Less beginning inventory 60,000 90,000 $ Required purchases 270,000 $ 315,000 *$400,000 sales 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 $ 48,000 $ 30,000 304,000 440,000 352,000 470,000 $ March 30,800 540,000 570,800 Quarter $ 108,800 1,284,000 1,392,800 228,000 129,000 292,500 145,000 1,700 240,000 121,000 84,500 Beginning cash balance Add collections from customers Total cash available Less cash disbursements: Inventory purchases Selling and administrative expenses Equipment purchases Cash dividends Total cash disbursements Excess (deficiency) of cash Financing Borrowings Repayments Interest Total financing Ending cash balance 760,500 395,000 86,200 45,000 1,286,700 106,100 45,000 402,000 (50,000) 439,200 30,800 445,500 125,300 80,000 (80,000) 2,400 (77,600) 28,500 0 80,000 30,000 0 $ 125,300 $ $ 30,800 $ Prepare an absorption costing income statement for the quarter ending March 31. $ 1,300,000 Hillyard Company Income Statement For the Quarter Ended March 31 Sales Cost of goods sold: Beginning inventory 60,000 Purchases 750,000 810,000 Ending inventory 30,000 780,000 520,000 Selling and administrative expenses: Salaries and wages Advertising Shipping Other expenses Depreciation Interest expense 81,000 210,000 65,000 39,000 42,000 2,400 439,400 80,600 Net income $ 80,600 Prepare a balance sheet as of Hillyard Company Balance Sheet March 31 Assets Current assets: Total current assets 0 Total assets $ 0 Liabilities and Stockholders' Equity Current liabilities: Stockholders' equity 0 Total liabilities and stockholders' equity $ 0