Hillyard Company, an office supplies specialty store, prepares its master budget on a quarterly basis. The following data have been assembled to assist in preparation of 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: Credits Cash Accounts receivable Inventory Buildings and equipment (net) Accounts payable Capital shares Retained earnings Debits $ 48,000 224,000 61,500 367,000 $ 93,000 495,000 112,500 $700,500 $700,500 b. Actual sales for December and budgeted sales for the next four months are as follows: December (actual) January February March April $280,000 410,000 660,000 280,000 210,000 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. e. Monthly expenses are budgeted as follows: salaries and wages, $25,000 per month; advertising, $68,000 per month; shipping, 5% of sales; depreciation, $13,000 per month; other expenses, 3% of sales. f. At the end of each month, inventory is to be on hand equal to 25% of the following month's sales needs, stated at cost. g. One-half of a month's inventory purchases are paid for in the month of purchase; the other half are paid for in the following month. h. During February, the company will purchase a new copy machine for $2,500 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. The company must maintain a minimum cash balance of $28,000. An open line of credit is available at a local bank for any borrowing that may be needed during the quarter. All borrowing is done at the beginning of a month, and all repayments are made at the end of a month. Borrowings and repayments of principal must be in multiples of $1,000. Interest is paid only at the time of payment of principal. The annual interest rate is 12%. (Figure interest on whole months, e.g., 1/12, 2/12.) Required: Using the preceding data, complete the following statements and schedules for the first quarter: 1. Schedule of expected cash collections. HILLYARD COMPANY Schedule of Expected Cash Collections January February March $ 82,000 $ 132,000 $ 56,000 224,000/ 328,000 528,000 $ 306,000 $ 460,000 $ 584,000 Cash sales Credit sales Total cash collections Quarter $ 270,000 1,080,000 $1,350,000 2-a. Inventory purchases budget. HILLYARD COMPANY Inventory Purchases Budget January February $ 306,000 March Quarter Budgeted cost of goods sold Add: Desired ending inventory Total needs Deduct: Beginning inventory Required inventory purchases 2-b. Schedule of cash disbursements for purchases. Quarter HILLYARD COMPANY Schedule of Cash Disbursements for Purchases January February March December purchases January purchases February purchases March purchases Total cash disbursements for purchases 3. Schedule of cash disbursements for expenses. HILLYARD COMPANY Schedule of Cash Disbursements for Operating Expenses January February March Quarter Total cash disbursements for operating expenses 4. Cash budget. (Roundup "Borrowing" and "Repayments" answers to the nearest whole dollar amount. Any "Repayments" and "Interest" should be indicated by a minus sign.) HILLYARD COMPANY Cash Budget January February March Quarter Total cash available Deduct: Disbursements: Total disbursements Excess (deficiency) of cash Financing: Total financing 5. Prepare an income statement for the quarter ending March 31. HILLYARD COMPANY Income Statement For the Quarter Ended March 31 Deduct: Cost of goods sold: Goods available for sale Deduct: Operating expenses: 6. Prepare a balance sheet as of March 31. HILLYARD COMPANY Balance Sheet As of March 31 Assets Current assets: Total current assets Total assets Liabilities and Shareholders' Equity Current liabilities: Stockholders' equity: Total shareholders' equity Total liabilities and shareholders' equity