Hillyard Company, an office supplies specialty store, prepares its master budget on a quarterly...

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:

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


Cash	$	41,000
Accounts receivable		200,800
Inventory		57,900
Buildings and equipment (net)		351,000
Accounts payable			$	85,425
Common stock				500,000
Retained earnings				65,275
	$	650,700	$	650,700

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


December(actual)	$	251,000
January	$	386,000
February	$	583,000
March	$	297,000
April	$	194,000

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 company’s 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, $16,000 per month: advertising, $56,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $42,260 for the quarter.
Each month’s ending inventory should equal 25% of the following month’s cost of goods sold.
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.
During February, the company will purchase a new copy machine for $1,100 cash. During March, other equipment will be purchased for cash at a cost of $70,500.
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:

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.

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Nitish Lath · Accepted Answer

Schedule of expected collection
		Schedule of expected collection
		Particulars	Jan	Feb	Mar	Total	April
		Sales	386,000	583,000	297,000	1,266,000	194,000
		Credit sales (80%)	308,800	466,400	237,600	1,012,800
		Collection in next month	200,800	308,800	466,400	976,000
		Cash sales	77,200	116,600	59,400	253,200
		Total collection	278,000	425,400	525,800	1,229,200
		Accounts receivables			237,600
Schedule of cash disbursement
		Schedule of expected cash disbursements for merchandise purchases
		Particulars	Jan	Feb	Mar	Total	April
		Sales	386,000	583,000	297,000	1,266,000	194,000
		Cost of sales (60%)	231,600	349,800	178,200	759,600	116,400
		Closing inventory (25% of next month COS)	87,450	44,550	29,100	29,100
		Less: Opening inventory	57,900	87,450	44,550	57,900
		Purchases	261,150	306,900	162,750	730,800
		Cash disbursements
		50% in same month	130,575	153,450	81,

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...

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