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 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: S 51,000 208,800 59,400 361,000 Accounts receivable Buildings and equipment (net) Accounts payable Common stock Retained earnings $88,425 500,000 91,775 S 680,200 680,200 b. Actual sales for December and budgeted sales for the next four months are as follows: $261,000 $ 396,000 $ 593,000 $307,000 $20,000 Decemberactual) February March 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, $26,000 per month; advertising $66,000 per month, shipping, 5% of sales; other expenses 3% o sales. Depreciation including depreciation on new assets acquired during the quarter, will be $43,860 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 $2,100 cash. During March, other equipment will be purchased for cash at a cost of $75,500 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 or simplicity we will assume that interest is not compounded. The company would as ar as it is able repay the loan plus accumulated interest at the end o the quarter

Answer 1

1	Schedule of Expected Cash collections for January, February and March
		January	February	March	Quarter
	Sales	$396,000	$593,000	$307,000	$1,296,000
	Schedule of Expected Cash collections
	Cash Sales	$79,200	$118,600	$61,400	$259,200
	Credit Sales	$208,800	$316,800	$474,400	$1,000,000
	Total cash collections	$288,000	$435,400	$535,800	$1,259,200
2A	Merchandise Purchase Budget for January, February and March
		January	February	March	Quarter
	Cost of goods sold	$237,600	$355,800	$184,200	$777,600
	Desired Ending Inventory	$88,950	$46,050	$30,600	$30,600
	Total needs	$326,550	$401,850	$214,800	$808,200
	Beginning Inventory	$59,400	$88,950	$46,050	$59,400
	Required Purchase	$267,150	$312,900	$168,750	$748,800
2B	Schedule of Expected Cash disbursement for January, February and March
		January	February	March	Quarter
	Accounts payable	$88,425			$88,425
	From January purchases	$133,575	$133,575		$267,150
	From February purchases		$156,450	$156,450	$312,900
	From March purchases			$84,375	$84,375
	total cash disbursement	$222,000	$290,025	$240,825	$752,850
3	Cash Budget
		January	February	March	Quarter
	Beginning Cash Balance	$51,000	$30,320	$34,155	$51,000
	Add: Cash Collection	$288,000	$435,400	$535,800	$1,259,200
	Total Cash Available	$339,000	$465,720	$569,955	$1,310,200
	Less: Cash disbursement
	Inventory purchases	$222,000	$290,025	$240,825	$752,850
	Salaries and Wages	$26,000	$26,000	$26,000	$78,000
	Advertising	$66,000	$66,000	$66,000	$198,000
	Shipping	$19,800	$29,650	$15,350	$64,800
	Other expenses	$11,880	$17,790	$9,210	$38,880
	Equipment purchase		$2,100	$75,500	$77,600
	Dividend	$45,000			$45,000
	Total Cash disbursement	$390,680	$431,565	$432,885	$1,255,130
	Excess (deficiency) of cash	($51,680)	$34,155	$137,070	$55,070
	Financing:
	Borrowing	$82,000			$82,000
	Repayment			($82,000)	($82,000)
	Interest			($2,460)	($2,460)
	Total Financing	$82,000	$0	($84,460)	($2,460)
	Ending Cash Balance	$30,320	$34,155	$52,610	$52,610
4	Income Statement for the Quarter
	Particulars	Amount
	Sales		$1,296,000
	Cost of Goods Sold:
	Beginning Inventory	$59,400
	Add: Purchases	$748,800
	Goods available for sale	$808,200
	Less: Ending Inventory	$30,600	$777,600
	Gross Profit		$518,400
	Operating expenses:
	Salaries and Wages	$78,000
	Advertising	$198,000
	Shipping	$64,800
	Other expenses	$38,880
	Depreciation	$43,860
	Total Operating expenses		$423,540
	Operating Profit		$94,860
	Non-operating expenses:
	Interest expense		$2,460
	Net income		$92,400
5	Balance Sheet
	as of March 31
	Assets:
	Cash	$52,610
	Accounts receivable	$245,600
	Inventory	$30,600
	Building and Equipment, net of depreciation	$394,740	(361000+2100+75500-43860)
	Total Assets	$723,550
	Liabilities and Stockholders Equity
	Accounts payable	$84,375
	Common Stock	$500,000
	Retained Earnings	$139,175	(91775-45000+92400)
	Total Liabilities and Stockholder's Equity	$723,550