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:

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

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, $19,000 per month: advertising, $59,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $42,740 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 $1,400 cash. During March, other equipment will be purchased for cash at a cost of $72,000.

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.

Cash Accounts receivable Inventory Buildings and equipment (net) Accounts payable Common stock Retained earnings $ 44,000 203,200 58,350 354,000 $ 86,325 500,000 73,225 $ 659,550 $ 659,550 December (actual) January February March April $ 254,000 $389,000 $586,000 $300,000 $ 197,000 Required 1 Required 2A Required 2B Required 3 Required 4 Required 5 Complete the Schedule of expected cash collections: Schedule of Expected Cash Collections January February March $ 77,800 Quarter Cash sales Credit sales 203,200 $ 281,000 Total collections Required 1 Required 2A Required 2B Required 3 Required 4 Required 5 Complete the merchandise purchases budget: Merchandise Purchases Budget January February March Quarter Budgeted cost of goods sold 233,400* $ 351,600 Add desired ending inventory 87,9001 Total needs 321,300 Less beginning inventory 58, Required purchases $ 262,950 *$389,000 sales ~ 60% cost ratio = $233,400. $351,600 ~ 25% = $87,900. 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 $ 86,325 January purchases 131,475 131,475 February purchases March purchases Total cash disbursements for purchases Hillyard Company Cash Budget January February March Quarter 44,000 Beginning cash balance Add collections from customers 281,000 Total cash available Less cash disbursements: 217,800 Inventory purchases Selling and administrative expenses Equipment purchases 109,120 Cash dividends 45,000 Total cash disbursements 371,920 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