Problem 8-31 Completing a Master Budget (L08-2, 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 $ 42,000 201,600 58,050 352,000 $ 85,725 500,000 67,925 $ 653,650 $ 653,650 b. Actual sales for December and budgeted sales for the next four months are as follows: December(actual) January February March April $ 252,000 $ 387,000 $ 584,000 $ 298,000 $ 195,000 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, $17,000 per month: advertising, $57,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $42,420 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 $1,200 cash. During March, other equipment will be purchased for cash at a cost of $71,000. 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 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. 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 Cash sales $ 77,400 $ 116,800 $ 59,600 Credit sales 201,600 309,600 467,200 Total collections $ 279,000 $ 426,400 $ 526,800 Quarter $ 253,800 978,400 1,232,200 Required 1 Required 2A Required 2B Required 3 Required 4 Required 5 Complete the merchandise purchases budget: Merchandise Purchases Budget January Budgeted cost of goods sold 232,200* Add desired ending inventory 87,600+ Total needs 319,800 Less beginning inventory Required purchases $ 261,750 *$387,000 sales Required 1 Required 2A Required 2B Required 3 Required 4 Required 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 $ 85,725 $ 85,725 January purchases 130,875 130,875 261,750 February purchases March purchases Total cash disbursements for purchases $ 216,600 $ 130,875 $ 0 $ 347,475 Complete the cash budget. (Cash deficiency, repayments and interest should be indicated by a minus sign.) Quarter Hillyard Company Cash Budget January February $ 42,000 $ 30,440 279,000 426,400 321.000 456,840 $ Beginning cash balance Add collections from customers Total cash available Less cash disbursements: March 50,295 526,800 5 77,095 Inventory purchases 284,625 235,425 216,600 104,960 1,200 7 1,000 45,000 Selling and administrative expenses Equipment purchases Cash dividends Total cash disbursements Excess (deficiency) of cash Financing Borrowings Repayments 366,560 (45,560) 285,825 171,015 306,425 270,670 75, 560 0 77,520 Interest 76.000 Total financing Ending cash balance 151,560 106,000 77,520 348,190 $ $ 171,015 $ $ 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: ...... Resmirad.3......... ........Ragmirad. 5............. 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