Question

Hillyard Company, an office supplies specialty store, prepares its master budget on a quarterly basis. The following data have been assembled to assist in preparation of 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: Credits Cash Accounts receivable Inventory Buildings and equipment (net) Accounts payable Capital shares Retained earnings Debits $ 49,000 224,000 60,000 376,000 $ 93,000 510,000 106,000 $709,000 $709,000 b. Actual sales for December and budgeted sales for the next four months are as follows: December (actual) January February March April $280,000 400,000 630,000 280,000 210,000 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. e. Monthly expenses are budgeted as follows: salaries and wages, $25,000 per month; advertising, $68,000 per month; shipping, 5% of sales; depreciation, $12,000 per month; other expenses, 3% of sales. f. At the end of each month, inventory is to be on hand equal to 25% of the following month's sales needs, stated at cost. g. One-half of a month's inventory purchases are paid for in the month of purchase; the other half are paid for in the following month. h. During February, the company will purchase a new copy machine for $2,400 cash. During March, other equipment will be purchased for cash at a cost of $83,000. i. During January, the company will declare and pay $44,000 in cash dividends. j. The company must maintain a minimum cash balance of $31,000. An open line of credit is available at a local bank for any borrowing that may be needed during the quarter. All borrowing is done at the beginning of a month, and all repayments are made at the end of a month. Borrowings and repayments of principal must be in multiples of $1,000. Interest is paid only at the time of payment of principal. The annual interest rate is 12%. (Figure interest on whole months, e.g., 1/12, 2/12.) Required: Using the preceding data, complete the following statements and schedules for the first quarter: 1. Schedule of expected cash collections.

Answer 1

Solution 1:
Schedule of expected cash collections
Particulars	January	February	March	Quarter
Budgeted Sales	$400,000.00	$630,000.00	$280,000.00	$1,310,000.00
Cash Sale	$80,000.00	$126,000.00	$56,000.00	$262,000.00
Collection for credit sales	$224,000.00	$320,000.00	$504,000.00	$1,048,000.00
Total Collections	$304,000.00	$446,000.00	$560,000.00	$1,310,000.00
Solution 2a:
Merchandise Purchase Budget
Particulars	January	February	March	Quarter
Budgeted Cost of Goods Sold (60% of Sales)	$240,000.00	$378,000.00	$168,000.00	$786,000.00
Add: Desired ending merchandise inventory (25% of next month COGS)	$94,500.00	$42,000.00	$31,500.00	$31,500.00
Total Needs	$334,500.00	$420,000.00	$199,500.00	$817,500.00
Less: Beginning inventory	$60,000.00	$94,500.00	$42,000.00	$60,000.00
Required purchases	$274,500.00	$325,500.00	$157,500.00	$757,500.00
Solution 2b:
Schedule of expected cash disbursement - Merchandise Purchases
Particulars	January	February	March	Quarter
March Purchases	$93,000.00			$93,000.00
April Purchases	$137,250.00	$137,250.00		$274,500.00
May Purchases		$162,750.00	$162,750.00	$325,500.00
June Purchases			$78,750.00	$78,750.00
Total Disbursement	$230,250.00	$300,000.00	$241,500.00	$771,750.00
Solution 3:
Schedule of expected cash disbursement of Selling and Administrative expenses
Particulars	January	February	March	Quarter
Salaries and wages	$25,000.00	$25,000.00	$25,000.00	$75,000.00
Advertising	$68,000.00	$68,000.00	$68,000.00	$204,000.00
Shipping (5% of sales)	$20,000.00	$31,500.00	$14,000.00	$65,500.00
Other expenses (3% of sales)	$12,000.00	$18,900.00	$8,400.00	$39,300.00
Total Disbursement	$125,000.00	$143,400.00	$115,400.00	$383,800.00

Solution 4:

Cash Budget - Hillyard company
Particulars	January	February	March	Quarter
Opening Cash balance	$49,000.00	$31,750.00	$31,950.00	$49,000.00
Add: Collection from customers	$304,000.00	$446,000.00	$560,000.00	$1,310,000.00
Total Cash Available	$353,000.00	$477,750.00	$591,950.00	$1,359,000.00
Less - Cash Disbursement:
For Inventory	$230,250.00	$300,000.00	$241,500.00	$771,750.00
For Selling and administrative Expenses	$125,000.00	$143,400.00	$115,400.00	$383,800.00
For Equipment	$0.00	$2,400.00	$83,000.00	$85,400.00
For Cash Dividend	$44,000.00	$0.00	$0.00	$44,000.00
Total Cash disbursement	$399,250.00	$445,800.00	$439,900.00	$1,284,950.00
Excess (deficiency) of cash available over disbursements	-$46,250.00	$31,950.00	$152,050.00	$74,050.00
Financing:
Borrowings	$78,000.00	$0.00	$0.00	$78,000.00
Repayments	$0.00	$0.00	-$78,000.00	-$78,000.00
Interest	$0.00	$0.00	-$2,340.00	-$2,340.00
Total Financing	$78,000.00	$0.00	-$80,340.00	-$2,340.00
Ending cash balance	$31,750.00	$31,950.00	$71,710.00	$71,710.00

Solution 5:

Absorption costing income statement - Hillyard Company
for quarter ended March 31
Particulars	Amount
Sales	$1,310,000.00
Cost of goods sold (60%)	$786,000.00
Gross profit	$524,000.00
Operating expenses:
Salaries and wages	$75,000.00
Advertising	$204,000.00
Shipping (5% of sales)	$65,500.00
Other expenses (3% of sales)	$39,300.00
Depreciation	$36,000.00
Total operating expenses	$419,800.00
Operating income	$104,200.00
Interest expense	$2,340.00
Net Income	$101,860.00

Solution 6:

Balance Sheet- Hillyard Company
31-Mar
Particulars	Amount
Assets:
Cash	$71,710.00
Accounts receivables ($280000*80%)	$224,000.00
Inventory	$31,500.00
Building and equipment, net ($376000 +$2,400+ $83,000- $36000)	$425,400.00
Total Assets	$752,610.00
Liabilities and stockholder's Equity:
Accounts payable (157500*50%)	$78,750.00
Common Stock	$510,000.00
Retained Earnings ($106,000 + $101,860- $44000)	$163,860.00
Total liabilities and stockholders equity	$752,610.00