Hillyard Company, an office supplies specialty store, prepares its master budget
ID: 2533828 • 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:
Cash $
55,000
Accounts receivable
212,000
Inventory
60,000
Buildings and equipment (net)
365,000
Accounts payable $
89,625
Common stock
500,000
Retained earnings
102,375
$
692,000
$
692,000
Actual sales for December and budgeted sales for the next four months are as follows:
December(actual) $
265,000
January $
400,000
February $
597,000
March $
312,000
April $
208,000
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, $30,000 per month: advertising, $66,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $44,500 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 $2,500 cash. During March, other equipment will be purchased for cash at a cost of $77,500.
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.
Explanation / Answer
ans 1 Schedule of Expected Cash Collections January Feb March Quarter April Total sales T $400,000 597000 312000 1309000 208000 Cash Sales (20% for cash) S $80,000 $119,400 $62,400 $261,800 Credit Sales (T-S) 89625 $320,000 $477,600 887225 Total Collections 169625 439400 540000 1149025 Merchandise Purchases Budget January Feb March Quarter April Budgeted Cost of Goods Sold (60%*sales) $240,000 $358,200 $187,200 $785,400 $124,800 Add Desired Ending Inventory (25%*next COGS $89,550 $46,800 $31,200.0 $31,200.0 Total Needs $329,550 $405,000 $218,400 $816,600 Less Beginning Inventory $60,000 $89,550 $46,800 $60,000 Required Purcahses $269,550 $315,450 $171,600 $756,600 Schedule of Expected Cash Disbursements- Merchandise Purchases (50% in same month and 50% in next month) January Feb March Quarter March Purchases $89,625 $89,625 April Purchases $134,775 $134,775 $269,550 May Purchases $157,725 $157,725 $315,450 June Purchases $85,800 $85,800 Total Disbursements $224,400 $292,500 $243,525 $760,425 Cash Budget January Feb March Quarter Beginnning Cash Balance 55,000 $30,225 $30,895 55,000 Add Cash Collections 169,625 439,400 540,000 1,149,025 Total Cash Avail 224,625 469,625 570,895 1,204,025 Less Cash Disbursements For Inventory $224,400 $292,500 $243,525 $760,425 For Expenses 132000 149730 124080 405810 For dividend 45000 0 0 45000 For Equipment 0 2500 77500 80000 Total Cash Disbursements $401,400 $444,730 $445,105 $1,291,235 Excess(Deficiency) of Cash ($176,775) $24,895 $125,790 ($87,210) Financing: Borrowings: 207000 6000 213000 Repayments: -89000 -89000 Interest: -6330 -6330 Total Financing 207000 6000 -95330 117670 Ending Cash Balance $30,225 $30,895 $30,460 $30,460 Interet: (207000*3%)+(6000*2%) working Expenses January Feb March Quarter Salaries & wages 30000 30000 30000 90000 Advertising 66000 66000 66000 198000 Shipping (6%*sales) $24,000 $35,820 $18,720 $78,540 Other expenses (3%*sales) $12,000 $17,910 $9,360 $39,270 Total cash expenses 132000 149730 124080 405810 Income statement sales 1309000 Less;: Cost of Good sold $785,400 Gross profit $523,600 Less: S & A exp Salaries & wages 90000 Advertising 198000 Shipping (6%*sales) 78540 Other expenses (3%*sales) 39270 Depreciation 44500 Total S & A exp 450310 Net operating income $73,290 Interest exp -6330 Net Income $66,960 Balance sheet Current assets Cash 30,460 Accounts receivable 249,600 Inventory 31,200 Total Current assets 311,260 Building and equipment, net (365000+80000-44500) 400500 Total assets 711,760 Liabilities & stockholder equity Current liabilities Accounts payable 85,800 Bank loan payable 124,000 Total current liabilities 209,800 stockholder equity Common stock 500000 Retained earnings (102375+66960-45000) $124,335 Totl stockholder equity $624,335 Total Liabilities & stockholder equity $834,135
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