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 company's general ledger showed the following account balances:

Cash	42,000
Accounts receivable	201,600
Inventory	58,050
Buildings and equipment (net)	352,000
Accounts payable		85,725
Common stock		500,000
Retained earnings		67,925
	653,650	653,650

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

December (actual)	252,000
January	387,000
February	584,000
March	298,000
April	195,000

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. (In other words, cost of goods sold is 60% of sales.)

e. Monthly expenses are budgeted as follows: salaries and wages, $17,000 per month; advertising, $57,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $42,420 for the quarter.

f. Each month's ending inventory should equal 25% of the following month's cost of goods sold.

g. One-half of a month's 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 $1,200 cash. During March, other equipment will be purchased for cash at a cost of $71,000.

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 expeted cash collections:

Hillyard Company Schedule of Expected Cash Collections

	January	February	March	Quarter
Cash sales	77,400			77,400
Credit sales	201,600			201,600
Total collections	279,000			279,000

2-a. Merchandise purchases budget:

Hillyard Company Merchandise Purchases Budget

	January	February	March	Quarter
Budgeted cost of goods sold	232,200*	350,400
Add desired ending inventory	87,600
Total needs	319,800	350,400
Less beginning inventory	58,050
Required purchases	261,750

*$387,000 sales x 60% cost ratio = $232,200.

$350,400 25% = $87,600.

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

Hillyard Company Schedule of Expected Cash Disbursements for Merchandise Purchases

	January	February	March	Quarter
December purchases	85,725
January purchases	130,875	130,875
February purchases
March purchases
Total cash disbursements for purchases

3. 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	42,000
Add cash collections	279,000
Total cash available	321,000
Less cash disbursements:
Purchases of inventory	216,600
Selling and administrative expenses	104,960
Purchases of equipment
Cash dividends	45,000
Total cash disbursements	366,560
Excess (deficiency) of cash	(45,560)
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 Stocholders' Equity
Current liabilities
Stockholders' equity
Total liabilities and stockholders' equity