Hillyard Company an office supplies specialty store prepares

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 $ 40,000

Accounts receivable 200,000

Inventory 57,750

Buildings and equipment (net)350,000

Accounts payable $ 85,125

Common stock 500,000

Retained earnings 62,625

$ 647,750 $ 647,750

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

December(actual) $ 250,000

January $ 385,000

February $ 582,000

March $ 296,000

April $ 193,000

c. 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.

d. The company’s gross margin is 40% of sales. (In other words, cost of goods sold is 60% of sales.)

e. Monthly expenses are budgeted as follows: salaries and wages, $15,000 per month: advertising, $55,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $42,100 for the quarter.

f. Each month’s ending inventory should equal 25% of the following month’s cost of goods sold.

g. 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.

h. During February, the company will purchase a new copy machine for $1,000 cash.

i. During March, other equipment will be purchased for cash at a cost of $70,000. During January, the company will declare and pay $45,000 in cash dividends.

j. 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.

Solution

a) Schedule for Expected Cash Collection Jan Feb March quarter Cash Sales $77,000 $116,400 $59,200 $252,600 Credit Sales (A/R,80% of Jan, 80% of Feb) $200,000 $308,000 $465,600 $973,600 Total collection $277,000 $424,400 $524,800 $1,226,200 Actual sales for December and budgeted sales for the next four months are as follows: 20% Cash 80% credit Dec-17 $250,000 $250,000 Jan-18 $385,000 $77,000 $308,000 Feb-18 $582,000 $116,400 $465,600 Mar-18 $296,000 $59,200 $236,800 Apr-18 $193,000 $38,600 $154,400 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. b) Hillyard Company Merchandise Purchase Budget January February March Quarter Budgeted Cost of Goods Sold(60% of Sales) $231,000 $349,200 $177,600 $757,800 Add: Desired Ending Inventory(25% of Next Month\'s COGS) $87,300 $44,400 $28,950 $28,950 Total Needs $318,300 $393,600 $206,550 $786,750 Less: Beginning Inventory $57,750 $87,300 $44,400 $57,750 Required Inventory Purchase $260,550 $306,300 $162,150 $729,000 Desired ending inventory march = $193,000 x 60% x 25% $28,950 Jan. Beginning Inventory (given) Hillyard Company Cash Disbursement for Purchase For the Quarter ended March 30 January February March Quarter December Purchase $85,125 $85,125 January Purchase(50% 0f 260,550) $130,275 $130,275 $260,550 February Purchase(50% 306,300) $153,150 $153,150 $306,300 March Purchase(50% of 162150) $81,075 $81,075 Total cash Disbursement for Purchase $215,400 $283,425 $234,225 $733,050 *Account Payable of December for Purchase $85,125 will be paid in January Hillyard Company Cash Disbursement for operating Expenses For the Quarter ended March 30,2011 January February March Quarter Salaries and Wages $15,000 $15,000 $15,000 $45,000 Advertising $55,000 $55,000 $55,000 $165,000 Shipping (5% of Sales) $19,250 $29,100 $14,800 $63,150 Other Expenses(3% of Sales) $11,550 $17,460 $8,880 $37,890 Total Cash Disbursement $100,800 $116,560 $93,680 $311,040 Hillyard Company Cash Budget For the Quarter ended March 30,2011 January February March Quarter Beginning Cash Balance 40000 30000 $53,415 48000 Add: Cash Collection $277,000 $424,400 $524,800 $1,226,200 Total Cash Available $317,000 $454,400 $578,215 $1,274,200 Less: Cash Disbursement Inventory Purchase $215,400 $283,425 $234,225 $733,050 Operating Expense $100,800 $116,560 $93,680 $311,040 Equipment Purchase 0 1000 70000 71000 Cash Dividend 45000 0 0 45000 Total Cash Disbursement $361,200 $400,985 $397,905 $1,160,090 Excess/Deficiency -$44,200 $53,415 $180,310 $114,110 Financing: Borrowing 74200 74200 Repayments 0 -74200 -74200 Interest(74200*12%*3/12) 0 -2226 -2226 Total Financing 74200 0 -76426 -2226 Ending Cash Balance $30,000 $53,415 $103,884 $111,884