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:

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

Cash	$	43,000
Accounts receivable		202,400
Inventory		58,200
Buildings and equipment (net)		353,000
Accounts payable			$	86,025
Common stock				500,000
Retained earnings				70,575
	$	656,600	$	656,600

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

December(actual)	$	253,000
January	$	388,000
February	$	585,000
March	$	299,000
April	$	196,000

3. 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.

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

5. Monthly expenses are budgeted as follows: salaries and wages, $18,000 per month: advertising, $58,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $42,580 for the quarter.

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

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

8. During February, the company will purchase a new copy machine for $1,300 cash. During March, other equipment will be purchased for cash at a cost of $71,500.

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

10. 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:

3. Cash budget:

regueu que queue requ e remyeyucu Complete the cash budget. (Cash deficiency, repayments and interest should be indicated by a minus sign.) Hillyard Company Cash Budget January February $ 43,000 280,000 427,400 323,000 427,400 March Quarter PS 43,000 527,800 1,235,200 527,800 1,278,200 217,200 107,040 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 285,225 122,800 122,800 1,300 0 409,325 18,075 236,025 99,920 71,500 of 407,445 120,355 738,450 329,760 72,800 45,000 1,186,010 92,190 45,000 369,240 (46,240) or or Repayments COD Interest Total financing Ending cash balance S (46,240) $ 18,075 $ 120,355 $ 92,190