Question 5 ch 9

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:

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

	Debit				Credit
Cash	$	55,000
Accounts receivable		212,000
Inventory		60,000
Buildings and equipment (net)		365,000
Accounts payable					$	89,625
Common stock						500,000
Retained earnings						102,375
	$	692,000			$	692,000

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

December(actual)	$	265,000
January	$	400,000
February	$	597,000
March	$	312,000
April	$	208,000

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.

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

Monthly expenses are budgeted as follows: salaries and wages, $30,000 per month: advertising, $66,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $44,500 for the quarter.

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

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

During February, the company will purchase a new copy machine for $2,500 cash. During March, other equipment will be purchased for cash at a cost of $77,500.

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

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:

*$400,000 sales 60% cost ratio = $240,000.

$358,200 25% = $89,550.

3. Cash budget. (Cash deficiency, repayments and interest should be indicated by a minus sign.)

4. Prepare an absorption costing income statement for the quarter ending March 31.

5. Prepare a balance sheet as of March 31.

2-a. Merchandise purchases budget: Merchandise Purchases Budget January February March Quarter Budgeted cost of goods sold Add desired ending inventory Total needs Less beginning inventory Required purchases 240,000S 358,200 89,550t 329,550 358,200 60,000 S 269,550 S 358,200 $ 0$ *$400,000 sales x 60% cost ratio t$358,200 25%-$89,550. $240,000 2-b. Schedule of expected cash disbursements for merchandise purchases: . Schedule of Expected Cash Disbursements for Merchandise Purchases January February March Quarter $ 89,625 December purchases January purchases February purchases March purchases Total cash disbursements for purchases224,400 $ 89,625 269,550 134,775 134,775 0 134,775 $ 359,175 3. Cash budget. (Cash deficiency, repayments and interest should be indicated by a minus sign.) Hillyard Company Cash Budget January February March Quarter Beginning cash balance 55,000 292,000 347,000 Add cash collections Total cash available 0. Less cash disbursements Purchases of inventory Selling and administrative expenses Purchases of equipment Cash dividends 224,400 128,000 45,000 397,400 (50,400) Total cash disbursements Excess (deficiency) of cash Financing 0 Repayments Interest Total financing Ending cash balance 0 0 0 $ (50,400)$ 0 4. 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 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: 0 Total liabilities and stockholders' equity