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Problem 8-31 Completing a Master Budget (LO8-2, LO8-4, LO8-7, LO8-8, LO8-9, LO8-10) 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 Accounts receivable Inventory Buildings and equipment (net) Accounts payable Common stock Retained earnings $ 48,000 224,000 60,000 370,000 $ 93,000 500,000 109,000 $ 702,000 $ 702,000 b. Actual sales for December and budgeted sales for the next four months are as follows: December (actual) January February March April $ 280,000 $ 400,000 $ 600,000 $ 300,000 $ 200,000 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, $27,000 per month: advertising, $70,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $42,000 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 $1,700 cash. During March, other equipment will be purchased for cash at a cost of $84,500. 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 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 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. 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 collections. Schedule of Expected Cash Collections January February March $ 80,000$ 120,000 $ 60,000 224,000 320,000 480,000 Cash sales Credit sales Quarter $ 260,000 1,024,000 $ 1,284,000 Total collections $ 304,000 $ 440,000 $ 540,000 Required 1 Required 2A > 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 $ 240,000 $ 360,000 $ 180,000 $ 780,000 Add desired ending inventory 90,000+ 45,000 30,000 30,000 Total needs 330,000 405,000 210,000 810,000 Less beginning inventory 60,000 90,000 45,000 60,000 $ 270,000 $ 315,000 $ 165,000 $ 750,000 Required purchases *$400,000 sales ~ 60% cost ratio = $240,000. $360,000 ~ 25% = $90,000. 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 cash budget. (Cash deficiency, repayments and interest should be indicated by a minus sign.) March Quarter Hillyard Company Cash Budget January February $ 48,000 $ 30,000 $ 304,000 440,000 352,000 470,000 Beginning cash balance 30,800 $ Add collections from customers 540,000 48,000 1,284,000 1,332,000 Total cash available 570,800 Less cash disbursements: 228,000 292,500 240,000 760,500 395,000 129,000 145,000 Inventory purchases Selling and administrative expenses Equipment purchases Cash dividends Total cash disbursements 121,000 84,500 0 1,700 86,200 45,000 0 0 402,000 439,200 30,800 445,500 125,300 45,000 1,286,700 45,300 (50,000) Excess (deficiency) of cash Financing: Borrowings Repayments 80,000 0 0 0 0 80,000 (80,000) (2,400) (2,400) Interest 0 (80,000) (2,400) (82,400) 42,900 0 80,000 0 Total financing Ending cash balance $ 30,000 $ 30,800 $ $ 42,900 Complete this question by entering your answers in the tabs below. Required 1 Required 2A Required 2B Required 3 Required 4 Required 5 Prepare an absorption costing income statement for the quarter ending March 31. Hillyard Company Income Statement For the Quarter Ended March 31 Sales $ 1,300,000 Cost of goods sold: Beginning inventory Purchases 60,000 750,000 810,000 (30,000) 780,000 520,000 Ending inventory Gross margin Selling and administrative expenses: Salaries and wages Advertising Shipping Other expenses Depreciation 81,000 210,000 65,000 39,000 42,000 437,000 83,000 Net operating income Interest expense (2,400) 80,600 Net income $ Complete this question by entering your answers in the tabs below. Required 1 Required 2A Required 2B Required 3 Required 4 Required 5 Prepare a balance sheet as of March 31. Hillyard Company Balance Sheet March 31 Assets Current assets: Cash $ Accounts receivable 42,900 240,000 30,000 Inventory Total current assets Buildings and equipment, net 312,900 414,200 Total assets $ 727,100 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 82,500 Stockholders' equity: Common stock Retained earnings $ 500,000 144,600 644,600 727,100 Total liabilities and stockholders' equity $