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: Please show the work!!!

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 $ 56,000 212,800 60, 150 366,000 $ 89,925 500,000 105,025 $ 694,950 $ 694,950 b. Actual sales for December and budgeted sales for the next four months are as follows: December (actual) January February March April $266,000 $401,000 $ 598,000 $313,000 $209,000 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, $31,000 per month: advertising, $65,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $44,660 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 $2,600 cash. During March, other equipment will be purchased for cash at a cost of $78,000. 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. 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 $ 80,200 $ 119,600 $ 62,600 Credit sales 212,800 320,800 478,400 Total collections 293.000 $ 440,400 541.000 Quarter $ 262,400 1,012,000 1.274.400 Required 1 Required 2 Required 1 Required 2A Required 2B Required 3 Required 4 Required 5 Complete the merchandise purchases budget: March Quarter Merchandise Purchases Budget January February Budgeted cost of goods sold 240,600* $ 358,800 Add desired ending inventory 89,700+ 46,950 Total needs 405,750 Less beginning inventory 60,150 89,700 187 800 787.200 31,350 31,350 219,1508 18,550 46,950 60,150 $ 316,050 172.200 758,400 Required purchases 270.150 *$401,000 sales * 60% cost ratio = $240,600. +$358,800 x 25% = $89,700. Required 1 Required 2B > 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 $ 89,925 $ 89,925 January purchases 135,075 135,075 270,150 February purchases 158,025 158,025 316,050 March purchases 86,100 86,100 Total cash disbursements for purchases 225,000 DE R $ 293,100 244 125 7 62.225 March Quarter $ Cash Budget January February 56,000 $ 30,929 % 293,000 440,400 349,000 471,329 541,000 541,000 1,274,400 1,274,400 762,225 225,000 128,080 0 X 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 293,100 188,500 2,600 0 484,200 (12,871) 244,125 165,700 0 0 409,825 131,175 45,000 398,080 (49,080) 45,000 807,225 467,175 80,000 0 0 80,000 30,920 0 0 0 0 (80,000) (2,400) (82,400) 48,775 80,000 (80,000) (2,400) (2,400) 464,775 $ $ (12,871) $ $ Hillyard Company Income Statement For the Quarter Ended March 31 Sales Cost of goods sold: Purchases Beginning inventory Goods available for sale Ending inventory Gross margin Selling and administrative expenses: Salaries and wages Advertising Shipping Other expenses Depreciation Shipping Other expenses Depreciation 0 Interest expense Net income 0 Hillyard Company Balance Sheet March 31 Assets Current assets: Cash Accounts receivable Inventory 0 Total current assets Buildings and equipment, net Total assets 0 Liabilities and Stockholders' Equity Current liabilities: Accounts payable Stockholders' equity: Common stock Retained earnings 0 Total liabilities and stockholders equity $ 0 Required 4 Required 5