PROBLEM 831 Completing a Master Budget

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:

As of December 31 (the end of the prior quarter), the companys general ledger showed the following account balances:

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

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.

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

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.

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

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

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.

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

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:

Schedule of expected cash collections:

Merchandise purchases budget:

Schedule of expected cash disbursements for merchandise purchases:

Schedule of cash disbursements for selling and administrative expenses:

	January	February	March	Quarter
Salaries and wages.	$27,000
Advertising..	70,000
Shipping.	20,000
Other expenses	12,000
Total cash disbursement for purchases	$129,000

4. Cash budget:

Prepare an absorption costing income statement for the quarter ending March 31 (see Excel template for Income Statement).

Prepare a balance sheet as of March 31 (see Excel template for Balance Sheet).

Input schedule:
Balance sheet for December 31, prior quarter:
		Debit	Credit
	Cash	$ 48,000
	Accounts Receivable	224,000
	Inventory	60,000
	Buildings and Equipment (net)	370,000
	Accounts Payable		$ 93,000
	Capital Stock		500,000
	Retained Earnings		109,000
		$ 702,000	$ 702,000
Sales, by month
	December (actual)	$ 280,000
	January	400,000
	February	600,000
	March	300,000
	April	200,000
Monthly expenses budgeted:
	Salaries and wages	27,000
	Advertising	70,000
	Shipping, 5% of sales	5%
	Other expenses, 3% of sales	3%
	Depreciation per month	14,000