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	$	40,000
Accounts receivable		200,000
Inventory		57,750
Buildings and equipment (net)		350,000
Accounts payable			$	85,125
Common stock				500,000
Retained earnings				62,625
	$	647,750	$	647,750

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

December(actual)	$	250,000
January	$	385,000
February	$	582,000
March	$	296,000
April	$	193,000

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, $15,000 per month: advertising, $55,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $42,100 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 $1,000 cash. During March, other equipment will be purchased for cash at a cost of $70,000.

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:

2-a. Merchandise purchases budget:

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

3. Cash budget:

4. Prepare an absorption costing income statement for the quarter ending March 31.

5. Prepare a balance sheet as of March 31.

• These are the fill in the blank options
• Accounts payable
• Accounts receivable
• Advertising
• Buildings and equipment, net
• Cash
• Common stock
• Cost of goods sold
• Depreciation
• Interest expense
• Note payable
• Other expenses
• Prepaid insurance
• Rent
• Retained earnings
• Salaries and wages
• Sales
• Shipping
• 
• These are the fill in the blank options
• Accounts payable
• Accounts receivable
• Buildings and equipment, net
• Cash
• Common stock
• Cost of goods sold
• Interest expense
• Inventory
• Note payable
• Prepaid insurance
• Retained earnings

Required 1 Required 2A Required 2B Required 3 Required 4 Required 5 Complete the Schedule of expected cash collections: Quarter Schedule of Expected Cash Collections January February March Cash sales $ 77,000 Credit sales 200,000 Total collections $ 277,000 Required 1 Required 2A Required 2B Required 3 Required 4 Required 5 Complete the merchandise purchases budget: Merchandise Purchases Budget March Quarter Budgeted cost of goods sold Add desired ending inventory January February $231,000* $ 349,200 87,3007 Total needs 318,300 Less beginning inventory 57,750 Required purchases *$385,000 sales * 60% cost ratio = $231,000. +$349,200 ~ 25% = $87,300. Required 1 Required 2A Required 2B Required 3 Required 4 Required 5 Complete the schedule of expected cash disbursements for merchandise purchases. Schedule of Expected Cash Disbursements for Merchandise Purchases January February March Quarter December purchases $ 85,125 January purchases 130,275 130,275 February purchases March purchases Total cash disbursements for purchases 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 $ 40,000 277,000 March Quarter Beginning cash balance Add collections from customers Total cash available Less cash disbursements: 215,400 100,800 Inventory purchases Selling and administrative expenses Equipment purchases Cash dividends 45,000 Total cash disbursements 361,200 Excess (deficiency) of cash Financing: Borrowings Repayments Interest Total financing Ending cash balance Hillyard Company Income Statement For the Quarter Ended March 31 Cost of goods sold: Selling and administrative expenses: Hillyard Company Balance Sheet March 31 Assets Current assets: Total current assets Total assets Liabilities and Stockholders' Equity Current liabilities: Stockholders' equity: Total liabilities and stockholders' equity