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 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 1Required 2A Required 2B Required 3 Required 4 Required 5 Complete the schedule of expected cash collections Schedule of Expected Cash Collections January February $ 80,000 March Quarter Cash sales Credit sales Total collections 224,000 $ 304,000 Required 1 Required 2A E Required 2B Required 3 Required 5 Required 4 Complete the merchandise purchases budget Merchandise Purchases Budget January February March $ 240,000 360,000 Quarter Budgeted cost of goods sold Add desired ending inventory Total needs Less beginning inventory Required purchases *$400,000 sales x 60% cost ratio-$240,000. t$360,000 25%-$90,000 90,000t 330,000 60,000 270,000 Required 1Required 2ARequired 2BRequired 3 Required 4 Required 5 Complete the schedule of expected cash disbursements for merchandise purchases Schedule of Expected Cash Disbursements for Merchandise Purchases JanuaryFebruary March Quarter S 93,000 December purchases January purchases February purchases March purchases Total cash disbursements for purchases 135,000 135,000 Required 1 Required 2A Required 2BRequired 3Required 4Required 5 Complete the cash budget. (Cash deficiency, repayments and interest should be indicated by a minus sign.) Hillyard Company Cash Budget February March Quarter January Beginning cash balance Add collections from customers Total cash available Less cash disbursements: 48,000 304,000 Inventory purchases Selling and administrative expenses Equipment purchases Cash dividends 228,000 129,000 45,000 Total cash disbursements Excess (deficiency) of Financing: Borrowings Repayments Interest Total financing Ending cash balance Required 1 Required 2A Required 2BRequired 3Required 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 Cost of goods sold: Selling and administrative expenses Required 2B Required 3 Required 5 Required 1 Required 2A Required 4 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