Hillyard Company, an office supplies specialty store, prepares its master budget
ID: 2398240 • Letter: H
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:
53,000
210,400
59,700
363,000
89,025
500,000
97,075
686,100
686,100
Actual sales for December and budgeted sales for the next four months are as follows:
263,000
398,000
595,000
309,000
206,000
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, $28,000 per month: advertising, $68,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $44,180 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 $2,300 cash. During March, other equipment will be purchased for cash at a cost of $76,500.
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.
Cash $53,000
Accounts receivable210,400
Inventory59,700
Buildings and equipment (net)363,000
Accounts payable $89,025
Common stock500,000
Retained earnings97,075
$686,100
$686,100
Explanation / Answer
1) Schedule of Expected cash collections January Feburary March Quarter Cash sales 79600 119000 61800 260400 Credit sales 210,400 318400 476000 1,004,800 total collections 290000 437400 537800 1265200 Accounts receivable at march 31= 309,000*80%=247,200 2-a) Merchandise purchase budget January Feburary March Quarter April budgeted cost of goods sold 238800 357000 185400 781200 123600 Add:Ending inventory 89250 46350 30900 30,900 total needs 328050 403350 216300 812100 less Beginning inventory 59,700 89,250 46,350 59,700 Required purchases 268,350 314,100 169,950 752,400 2-b) Schedule of Expected cash disbursement for Merchandise purchase January Feburary March Quarter December purchases 89,025 89,025 january purchases 134175 134175 268350 Feburary purchases 157050 157050 314100 march purchases 84975 84975 total cash disbursement for purchases 223,200 291225 242025 756,450 Accounts payable= 84,975 3) Cash budget January Feburary March Quarter Beginning cash balance 53,000 30,960 31235 53,000 Add cash collections 290000 437400 537800 1265200 total cash available 343,000 468360 569035 1,318,200 less cash disbursements purchase of inventory 223,200 291225 242025 756,450 selling and adm expense 127840 143600 120720 392160 purchase of equipment 0 2,300 76,500 78800 cash dividends 45,000 0 0 45,000 total cash disbursement 396,040 437125 439245 1,272,410 Excess(Deficiency) of cash -53,040 31235 129790 45,790 Financing Borrowings 84,000 0 0 84,000 Repayments 0 0 -84,000 -84000 interest 0 0 -2,520 -2520 total financing 84,000 0 -86520 -2,520 ending cash balance 30,960 31235 43270 43,270 interest expense = 84000*1%*3 2520 4) income statememt Sales 1302000 cost of goods sold Beginning invnetory 59,700 Add purchases 752,400 cost of goods avaialble 812,100 less ending inventory 30,900 781,200 Gross profit 520,800 Selling and administrative exp Salaries and wages 84,000 Advertising 204,000 shiiping 5% of sales 65100 other expense 3% of sales 39060 Depreciation 44,180 436,340 operating income 84,460 less interest expense 2,520 Net income 81,940 5) Balance sheet Asses current assets cash 43270 Account receivable 247,200 inventory 30,900 total current assets 321,370 buildings and Equipment (net) (363000+2300+76500-44180) 397620 total assets 718,990 liabilities & stockholders Equity current liabilities Accounts payable 84,975 total current liabilities 84,975 Stockholders Equity common stock 500,000 Retained earnings (97,075+81,940-45000) 134,015 total stockholders equity 634,015 total liabilities & stockholders equity 718,990
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