Hillyard Company, an office supplies specialty store, prepares its master budget

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:

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.

Monthly expenses are budgeted as follows: salaries and wages, $21,000 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 $43,060 for the quarter.

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 $1,600 cash. During March, other equipment will be purchased for cash at a cost of $73,000.

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.

         

Merchandise purchases budget:

          

  

Schedule of expected cash disbursements for merchandise purchases:

         

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.

         

Prepare a balance sheet as of March 31.

         

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:

Explanation / Answer

1. Schedule of expected cash collections:

2-a. Merchandise Purchase Budget:

2-b Scedule of expected cash disbursements for merchandise purchases:

3. Cash Budget for the three months ended March 31:

4. Budgeted Income Statement for the quarter ended March 31:

5. Budgeted Balance Sheet as of March 31:

January February March Sales 391,000 588,000 302,000 Cash sales 78,200 117,600 60,400 Collection of credit sales of December 204,800 January 312,800 February 470,400 Total 283,000 430,400 530,800

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