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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 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 $ 61,000 216,800 60,900 371,000 $ 91,425 500,000 118,275 $ 709, 700 $ 709, 700 b. Actual sales for December and budgeted sales for the next four months are as follows: December (actual) January February March April $271,000 $406,000 $603,000 $318,000 $214,000 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, $36,000 per month: advertising, $60,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $45,460 for the quarter. f. Each month's ending inventory should equal 25% of the following month's cost of goods sold. 9. 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 $3,100 cash. During March, other equipment will be purchased for cash at a cost of $80,500. 1. 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 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, 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 $ 81,200 $ 120,600 $ 63,600 $ 265,400 Credit sales 216,800 482,400 X 254,400 953,600 $ Total collections 298,000 $ 603,000 318,000 1,219,000 March Quarter Hillyard Company Cash Budget January February $ 61,000 298,000 359,000 0 0 0 228,000 128,480 0 Beginning cash balance Add collections from customers Total cash available Less cash disbursements: Inventory purchases Selling and administrative expenses Equipment purchases Cash dividends Total cash disbursements Excess (deficiency) of cash Financing: Borrowings Repayments Interest Total financing Ending cash balance 45,000 401,480 (42,480) olo 0 OO 0 0 0 0 0 0 0 0 0 0 Oo $ (42,480) 0 $ 0 Hillyard Company Income Statement For the Quarter Ended March 31 Sales Cost of goods sold: Beginning inventory Purchases 0 0 0 Goods available for sale Ending inventory Gross margin Selling and administrative expenses: Shipping Depreciation Salaries and wages Advertising Other expenses 0 0 Net operating income Interest expense Net income $ 0 Balance Sheet March 31 Assets Current assets: Cash Accounts receivable Inventory Total current assets 0 Total assets $ 0 Liabilities and Stockholders' Equity Current liabilities: Stockholders' equity: 0 Total liabilities and stockholders' equity $ 0
