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 companys general ledger showed the following account balances:

Cash	$	62,000
Accounts receivable		217,600
Inventory		61,050
Buildings and equipment (net)		372,000
Accounts payable			$	91,725
Common stock				500,000
Retained earnings				120,925
	$	712,650	$	712,650

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

December(actual)	$	272,000
January	$	407,000
February	$	604,000
March	$	319,000
April	$	215,000

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, $37,000 per month: advertising, $59,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, f. including depreciation on new assets acquired during the quarter, will be $45,620 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.

h. During February, the company will purchase a new copy machine for $3,200 cash. During March, other equipment will be purchased for cash at a cost of $81,000.

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:

Using the data above, complete the following statements and schedules for the first quarter:

1. Schedule of expected cash collections:

Schedule of Expected Cash Collections
	January	February	March	Quarter
Cash sales	$81,400
Credit sales	217,600
Total collections	$299,000

2-a. Merchandise purchases budget:

Merchandise Purchases Budget
	January	February	March	Quarter
Budgeted cost of goods sold	244,200*	$362,400
Add desired ending inventory	90,600
Total needs	334,800
Less beginning inventory	61,050
Required purchases	$273,750
*$407,000 sales 60% cost ratio = $244,200.
$362,400 25% = $90,600.

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

Schedule of Expected Cash Disbursements for Merchandise Purchases
	January	February	March	Quarter
December purchases	$91,725
January purchases	136,875	136,875
February purchases
March purchases
Total cash disbursements for purchases

3. Cash budget:

Hillyard Company
Cash Budget
	January	February	March	Quarter
Beginning cash balance	$62,000
Add cash collections	299,000
Total cash available
Less cash disbursements:
Inventory purchases	228,600
Selling and administrative expenses	128,560
Equipment purchases
Cash dividends	45,000
Total cash disbursements	402,160
Excess (deficiency) of cash
Financing:
Borrowings
Repayments
Interest
Total financing
Ending cash balance

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

Hillyard Company
Income Statement
For the Quarter Ended March 31
Cost of goods sold:
Selling and administrative expenses:

5. Prepare a balance sheet as of March 31.

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