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 $ 52,000 209,600 59,550 362,000 $ 88, 725 500,000 94,425 $ 683,150 $ 683,150 b. Actual sales for December and budgeted sales for the next four months are as follows: December (actual) January February March $ 262,000 $397,000 $ 594,000 $308,000 $ 205,000 April Mecca Copy Budgeted Balance Sheet Assets Current assets: Total current assets Plant and equipment: Plant and equipment, net Total assets Liabilities and Stockholders' Equity Current liabilities: Stockholders' equity: Total stockholders' equity Total liabilities and stockholders' equity 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, $67,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $44,020 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 $2,200 cash. During March, other equipment will be purchased for cash at a cost of $76,000. 1. 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 1 Required 2A Required 2B Required 3 Required 4 Required 5 Complete the Schedule of expected cash collections: Quarter Schedule of Expected Cash Collections January February March Cash sales $ 79,400 Credit sales 209,600 Total collections $ 289,000 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 merchandise purchases budget: March Quarter Merchandise Purchases Budget January February Budgeted cost of goods sold 238,200* $ 356,400 Add desired ending inventory 89,1007 Total needs 327,300 356,400 Less beginning inventory 59,550 Required purchases $ 267,750 $ 356,400 *$397,000 sales * 60% cost ratio = $238,200. +$356,400 ~ 25% = $89,100. $ 0 $ 0 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 disbursements for merchandise purchases. Schedule of Expected Cash Disbursements for Merchandise Purchases January February March Quarter December purchases $ 88,725 $ 88,725 January purchases 133,875 133,875 267,750 February purchases March purchases Total cash disbursements for purchases $ 222,600 $ 133,875 $ 0 $ 356,475 Required 1 Required 2A Required 2B Required 3 Required 4 Required 5 Complete the cash budget. (Cash deficiency, repayments and interest should be indicated by a minus sign.) March Quarter Hillyard Company Cash Budget January February $ 52,000 289,000 341,000 222,600 125,760 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 45,000 393,360 (52,360) 0 0 Interest Total financing Ending cash balance 0 0 $ (52,360) $ 0 $ $ 0 Required 1 Required 2A Required 2B Required 3 Required 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: 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