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	$	51,000
Accounts receivable		208,800
Inventory		59,400
Buildings and equipment (net)		361,000
Accounts payable			$	88,425
Common stock				500,000
Retained earnings				91,775
	$	680,200	$	680,200

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

December(actual)	$	261,000
January	$	396,000
February	$	593,000
March	$	307,000
April	$	204,000

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, $26,000 per month: advertising, $66,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $43,860 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 $2,100 cash. During March, other equipment will be purchased for cash at a cost of $75,500.

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.

Complete the Schedule of expected cash collections Schedule of Expected Cash Collections March January $ 79,200 February Quarter Cash sales Credit sales Total collections 208,800 $ 288,000 Complete the merchandise purchases budget Merchandise Purchases Budget January February March Quarter Budgeted cost of goods sold Add desired ending inventory Total needs Less beginning inventory Required purchases $396,000 sales 6096 cost ratio-$237,600 t$355,800 x 25%-$88,950 237,600* 355,800 88,950t 326,550 59,400 Complete the schedule of expected cash disbursements for merchandise purchases Schedule of Expected Cash Disbursements for Merchandise Purchases January $ 88,425 February March Quarter December purchases January purchases February purchases March purchases Total cash disbursements for purchases 133,575 133,575 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 Add cash collections Total cash available Less cash disbursements: S 51,000 288,000 Inventory purchases Selling and administrative expenses Equipment purchases Cash dividends 222,000 123,680 45,000 390,680 Total cash disbursements Excess (deficiency) of cash Financing Borrowings Repayments Interest Total financing Ending cash balance 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: 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