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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

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 $

54,000

Accounts receivable

211,200

Inventory

59,850

Buildings and equipment (net)

364,000

Accounts payable $

89,325

Common stock

500,000

Retained earnings

99,725

$

689,050

$

689,050

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

December(actual) $

264,000

January $

399,000

February $

596,000

March $

311,000

April $

207,000

  1. 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.

  2. The companys gross margin is 40% of sales. (In other words, cost of goods sold is 60% of sales.)

  3. Monthly expenses are budgeted as follows: salaries and wages, $29,000 per month: advertising, $67,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $44,340 for the quarter.

  4. Each months ending inventory should equal 25% of the following months cost of goods sold.

  5. One-half of a months inventory purchases is paid for in the month of purchase; the other half is paid in the following month.

  6. During February, the company will purchase a new copy machine for $2,400 cash. During March, other equipment will be purchased for cash at a cost of $77,000.

  7. During January, the company will declare and pay $45,000 in cash dividends.

  8. 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.

plete this question by entering your answers in the tabs below.

  • 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 Quarter
Cash sales $79,800 $79,800
Credit sales 211,200 211,200
Total collections $291,000 $0 $0 $291,000

Complete this question by entering your answers in the tabs below.

  • 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 $89,325 $89,325
January purchases 134,475 134,475 268,950
February purchases 0
March purchases 0
Total cash disbursements for purchases $223,800 $134,475 $0 $358,275

Complete this question by entering your answers in the tabs below.

  • 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 239,400* $357,600
Add desired ending inventory 89,400
Total needs 328,800 357,600 0 0
Less beginning inventory 59,850
Required purchases $268,950 $357,600 $0 $0
*$399,000 sales 60% cost ratio = $239,400.
$357,600 25% = $89,400.
  • 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 March Quarter
    Beginning cash balance $54,000
    Add cash collections 291,000
    Total cash available 345,000 0 0 0
    Less cash disbursements:
    Inventory purchases 223,800
    Selling and administrative expenses 127,920
    Equipment purchases
    Cash dividends 45,000
    Total cash disbursements 396,720 0 0 0
    Excess (deficiency) of cash (51,720) 0 0 0
    Financing:
    Borrowings
    Repayments
    Interest
    Total financing 0 0 0
    Ending cash balance $(51,720) $0 $0 $0

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