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:

Cash	$ 57,000
Accounts receivable	213,600
Inventory	60,300
Buildings and equipment (net)	367,000
Accounts payable		$ 90,225
Common stock		500,000
Retained earnings		107,675
	$ 697,900	$ 697,900

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

December(actual)	$ 267,000
January	$ 402,000
February	$ 599,000
March	$ 314,000
April	$ 210,000

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, $32,000 per month: advertising, $64,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $44,820 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 $2,700 cash. During March, other equipment will be purchased for cash at a cost of $78,500.

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:

Complete the Schedule of expected cash collections:

Schedule of Expected Cash Collections
	January	February	March	Quarter
Cash sales	$80,400			$80,400
Credit sales	213,600			213,600
Total collections	$294,000	$0	$0	$294,000

2-a. Merchandise purchases budget:

Complete the merchandise purchases budget:

Merchandise Purchases Budget
	January	February	March	Quarter
Budgeted cost of goods sold	$241,200*	$359,400
Add desired ending inventory	89,850
Total needs	331,050	359,400	0	0
Less beginning inventory	60,300
Required purchases	$270,750	$359,400	$0	$0
*$402,000 sales 60% cost ratio = $241,200.
$359,400 25% = $89,850.

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

Complete the schedule of expected cash disbursements for merchandise purchases.

Schedule of Expected Cash Disbursements for Merchandise Purchases
	January	February	March	Quarter
December purchases	$90,225			$90,225
January purchases	135,375	135,375		270,750
February purchases				0
March purchases				0
Total cash disbursements for purchases	$225,600	$135,375	$0	$360,975

3. Cash budget:

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	$57,000
Add collections from customers	294,000
Total cash available	351,000	0	0	0
Less cash disbursements:
Inventory purchases	225,600
Selling and administrative expenses	128,160
Equipment purchases
Cash dividends	45,000
Total cash disbursements	398,760	0	0	0
Excess (deficiency) of cash	(47,760)	0	0	0
Financing:
Borrowings
Repayments
Interest
Total financing	0		0	0
Ending cash balance	$(47,760)	$0	$0	$0