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: As of December 31 (the end of the prior quarter), the companys general ledger showed the following account balances:

	Debits	Credits
Cash	$ 48,000
Accounts receivable	224,000
Inventory	60,000
Buildings and equipment (net)	370,000
Accounts payable		$ 93,000
Common stock		500,000
Retained earnings		109,000
	$702,000	$702,000

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, $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 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.

1. 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.

h.During January, the company will declare and pay $45,000 in cash dividends.

I. 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:

	January	February	March	Quarter
Cash sales	$ 80,000
Credit sales	224,000
Total cash collections	$304,000

2. a. Merchandise purchases budget:

	January	February	March	Quarter
Budgeted cost of goods sold	$240,000*	$360,000
Add desired ending inventory	90,000
Total needs	330,000
Less beginning inventory	60,000
Required purchases	$270,000
*$400,000 sales 60% cost ratio = $240,000. $360,000 25% = $90,000.

2. b. MSchedule of expected cash disbursements for merchandise purchases:

		January	February	March	Quarter
December purchases		$ 93,000			$ 93,000
January purchases		135,000	135,000		270,000
February purchases
March purchases
Total cash disbursements for purchases		$228,000

3. Cash budget:

	January	February	March	Quarter
Beginning cash balance	$ 48,000
Add cash collections	304,000
Total cash available	352,000
Less cash disbursements:
Inventory purchases	228,000
Selling and administrative expenses	129,000
Equipment purchases
Cash dividends	45,000
Total cash disbursements	402,000
Excess (deficiency) of cash	(50,000)
Financing:
Etc.

4. Using Schedule 9 as your guide, prepare an absorption costing income statement for the quarter ending March 31.

5. Prepare a balance sheet as of March 31.