Hillyard Company, an office supplies specialty store, prepares its master budget
ID: 2403628 • 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:
60,000
216,000
60,750
370,000
91,125
500,000
115,625
706,750
706,750
Actual sales for December and budgeted sales for the next four months are as follows:
270,000
405,000
602,000
317,000
213,000
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, $35,000 per month: advertising, $61,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $45,300 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 $3,000 cash. During March, other equipment will be purchased for cash at a cost of $80,000.
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.
Complete this question by entering your answers in the tabs below.
Required 1
Required 2A
Required 2B
Required 3
Required 4
Required 5
Complete the Schedule of expected cash collections:
Required 1
Required 2A
Required 2B
Required 3
Required 4
Required 5
Complete the merchandise purchases budget:
Required 1
Required 2A
Required 2B
Required 3
Required 4
Required 5
Complete the schedule of expected cash disbursements for merchandise purchases.
Required 1
Required 2A
Required 2B
Required 3
Required 4
Required 5
Complete the cash budget. (Cash deficiency, repayments and interest should be indicated by a minus sign.)
Prepare an absorption costing income statement for the quarter ending March 31.
Required 1
Required 2A
Required 2B
Required 3
Required 4
Required 5
Prepare a balance sheet as of March 31.
Cash $60,000
Accounts receivable216,000
Inventory60,750
Buildings and equipment (net)370,000
Accounts payable $91,125
Common stock500,000
Retained earnings115,625
$706,750
$706,750
Explanation / Answer
1) Schedule of Expected cash collections January Feburary March Quarter Cash sales 81000 120400 63400 264800 Credit sales 216,000 324000 481600 1,021,600 total collections 297000 444400 545000 1286400 Accounts receivable at march 31=317,000*80%= 253600 2-a) Merchandise purchase budget January Feburary March Quarter April budgeted cost of goods sold 243000 361200 190200 794400 127800 Add:Ending inventory 90300 47550 31950 31,950 total needs 333300 408750 222150 826350 less Beginning inventory 60,750 90,300 47,550 60,750 Required purchases 272,550 318,450 174,600 765,600 2-b) Schedule of Expected cash disbursement for Merchandise purchase January Feburary March Quarter December purchases 91,125 91,125 january purchases 136275 136275 272550 Feburary purchases 159225 159225 318450 march purchases 87300 87300 total cash disbursement for purchases 227,400 295500 246525 769,425 Accounts payable= 87,300 3) Cash budget January Feburary March Quarter Beginning cash balance 60,000 30,200 31940 60,000 Add cash collections 297000 444400 545000 1286400 total cash available 357,000 474600 576940 1,346,400 less cash disbursements purchase of inventory 227,400 295500 246525 769,425 selling and adm expense 128400 144160 121360 393920 purchase of equipment 0 3,000 80,000 83000 cash dividends 45,000 0 0 45,000 total cash disbursement 400,800 442660 447885 1,291,345 Excess(Deficiency) of cash -43,800 31940 129055 55,055 Financing Borrowings 74,000 0 0 74,000 Repayments 0 0 -74,000 -74000 interest 0 0 -2,220 -2220 total financing 74,000 0 -76220 -2,220 ending cash balance 30,200 31940 52835 52,835 interest expense = 74000*1%*3 2220 4) income statememt Sales 1324000 cost of goods sold Beginning invnetory 60,750 Add purchases 765,600 cost of goods avaialble 826,350 less ending inventory 31,950 794,400 Gross profit 529,600 Selling and administrative exp Salaries and wages 105,000 Advertising 183,000 shiiping 5% of sales 66200 other expense 3% of sales 39720 Depreciation 45,300 439,220 operating income 90,380 less interest expense 2,220 Net income 88,160 5) Balance sheet Asses current assets cash 52835 Account receivable 253,600 inventory 31,950 total current assets 338,385 buildings and Equipment (net) (370000+3000+80000-45300) 407700 total assets 746,085 liabilities & stockholders Equity current liabilities Accounts payable 87,300 total current liabilities 87,300 Stockholders Equity common stock 500,000 Retained earnings (115,625+88,160-45000) 158,785 total stockholders equity 658,785 total liabilities & stockholders equity 746,085
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