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:

		Debits		Credits
Cash	$	46,000
Accounts receivable		204,800
Inventory		58,650
Buildings and equipment (net)		356,000
Accounts payable			$	86,925
Common stock				500,000
Retained earnings				78,525
	$	665,450	$	665,450

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

December (actual)	$	256,000
January	$	391,000
February	$	588,000
March	$	302,000
April	$	199,000

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, $21,000 per month: advertising, $61,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $43,060 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 $1,600 cash. During March, other equipment will be purchased for cash at a cost of $73,000.

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.

Req 1 Req 2A Req 2B Req 3 Req 4 Reg 5 Complete the Schedule of expected cash collections: Quarter Cash sales Schedule of Expected Cash Collections January February March $ 78,200 204,800 $ 283,000 $ 0 Credit sales 78,200 204,800 283,000 Total collections $ 0 $ Reg 1 Req 2A Req 2B Req 3 Reg 4 Req 5 Complete the merchandise purchases budget: Merchandise Purchases Budget March Quarter January February 234,600* $ 352,800 Budgeted cost of goods sold Add desired ending inventory 88,2007 Total needs 322,800 352,800 0 0 $ 352,800 $ 0 $ 0 Less beginning inventory 58,650 Required purchases $ 264,150 *$391,000 sales ~ 60% cost ratio = $234,600. +$352,800 ~ 25% = $88,200. Req 1 Req 2A Req 2B Req 3 Req 4 Reg 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 $ 86,925 $ 86,925 January purchases 132,075 132,075 264,150 February purchases 0 March purchases 0 Total cash disbursements for purchases $ 219,000 $ 132,075 $ 0 $ 351,075 Req 1 Reg 2A Req 2B Req 3 Reg 4 Reg 5 Complete the cash budget. (Cash deficiency, repayments and interest should be indicated by a Hillyard Company Cash Budget January $ 46,000 February March Quarter Beginning cash balance Add collections from customers 283,000 Total cash available 329,000 0 0 0 Less cash disbursements: Inventory purchases Selling and administrative expenses Equipment purchases Cash dividends 219,000 113,280 45,000 Total cash disbursements 377,280 0 0 0 Excess (deficiency) of cash (48,280) 0 0 0 Financing: Borrowings Repayments Interest 0 0 0 Total financing Ending cash balance $ (48,280) $ 0 $ 0 $ 0 Req 1 Req 2A Req 2B Reg 3 Req 4 Req 5 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: 0 oo Selling and administrative expenses: 0 0 $ 0 Hillyard Company Balance Sheet March 31 Assets Current assets: Total current assets 0 Total assets $ 0 Liabilities and Stockholders' Equity Current liabilities: Stockholders' equity: 0 Total liabilities and stockholders' equity $ 0