Homework SourseHillyard 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:
58,000
214,400
60,450
368,000
90,525
500,000
110,325
700,850
700,850
Actual sales for December and budgeted sales for the next four months are as follows:
268,000
403,000
600,000
315,000
211,000
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, $33,000 per month: advertising, $63,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $44,980 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 $2,800 cash. During March, other equipment will be purchased for cash at a cost of $79,000.
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.
| Cash | $ | 58,000 | ||
| Accounts receivable | 214,400 | |||
| Inventory | 60,450 | |||
| Buildings and equipment (net) | 368,000 | |||
| Accounts payable | $ | 90,525 | ||
| Common stock | 500,000 | |||
| Retained earnings | 110,325 | |||
| $ | 700,850 | $ | 700,850 | |
Solution
Schedule of expected cash collection
January
February
March
Quarter
Cash Sales
$ 80,600.00
$ 120,000.00
$ 63,000.00
$ 263,600.00
Credit Sales
$ 214,400.00
$ 322,400.00
$ 480,000.00
$ 1,016,800.00
Total collection
$ 295,000.00
$ 442,400.00
$ 543,000.00
$ 1,280,400.00
Merchandise Purchase Budget
January
February
March
Quarter
Budgeted Cost of Goods sold
$ 241,800.00
$ 360,000.00
$ 189,000.00
$ 790,800.00
Add: Desired Inventory
$ 90,000.00
$ 47,250.00
$ 31,650.00
$ 168,900.00
Total Needed
$ 331,800.00
$ 407,250.00
$ 220,650.00
$ 959,700.00
Less: Beginning Inventory
$ 60,450.00
$ 90,000.00
$ 47,250.00
$ 197,700.00
Required Purchase
$ 271,350.00
$ 317,250.00
$ 173,400.00
$ 762,000.00
Schedule of Expected Cash Disbursement for Merchandise Purchase
January
February
March
Quarter
December Purchase
90525
90525
January Purchase
135675
135675
271350
February Purchase
158625
158625
317250
March Purchase
86700
86700
Total Cash Disbursement for Purchases
226200
294300
245325
765825
Payment of December purchase is taken from closing balances in December.
Cash Budget
January
February
March
Quarter
Beginning Cash Balance
$ 58,000.00
$ 30,000.00
$ 31,300.00
58000
Add: Cash Collections
$ 295,000.00
$ 442,400.00
$ 543,000.00
$ 1,280,400.00
Total Cash Collection
$ 353,000.00
$ 472,400.00
$ 574,300.00
1338400
Less: Cash Disbursements
Inventory Purchases
$ 226,200.00
$ 294,300.00
$ 245,325.00
$ 765,825.00
Selling and Administrative expenses
$ 128,240.00
$ 144,000.00
$ 121,200.00
$ 393,440.00
Equipment Purchase
$ 79,000.00
$ 2,800.00
$ 81,800.00
Cash Devidends
$ 45,000.00
$ 45,000.00
Total Cash Disbursement
$ 478,440.00
$ 441,100.00
$ 366,525.00
$ 1,286,065.00
Excess (deficiency) of Cash
$ (125,440.00)
$ 31,300.00
$ 207,775.00
$ 52,335.00
Financing:
Borrowings
$ 155,440.00
$ -
$ -
$ 155,440.00
Repayments
$ -
$ -
$ 160,103.20
$ 160,103.20
Interest
$ 1,554.40
$ 1,554.40
$ 1,554.40
Total Financing
$ 156,994.40
$ 1,554.40
$ (158,548.80)
Ending Cash Balance
$ 30,000.00
$ 31,300.00
$ 47,671.80
$ 47,671.80
Notes:
Interest is repaid at the end of quarter not at the end on every month.
Ending cash balance is calculated as follows
Excess (deficiency) of Cash
XXXXX
Add Borrowings
XXXXX
Less: repayments
(XXXXX)
XXXXX
Hillyard Company
Income Statement
Sales
$ 1,318,000.00
Less Cost of Goods Sold
$ 790,800.00
Gross Profit
$ 527,200.00
Expenses
Operating Expenses
Salaries and Wages
$ 99,000.00
Advertisement
$ 189,000.00
Shipping Expense
$ 65,900.00
Interest Expenses
4663.2
Other Expenses
$ 39,540.00
Depreciation
$ 44,980.00
Total Operating Expenses
$ 443,083.20
Net Profit
$ 84,116.80
Dividends Paid
$ 45,000.00
Profit after Divedend
$ 39,116.80
Hillyard Company
Balance sheet
Current Assets
Cash
$ 47,671.80
Accounts Receivables
$ 252,000.00
Inventory
$ 31,650.00
Fixed assets
Building and Equipment (net)
$ 404,820.00
Total Assets
$ 736,141.80
Liabilities and Shareholders\'s equity
Current Liabilities
Accounts Payable
$ 86,700.00
ShareHolders Equity
Common Stock
$ 500,000.00
Retained Earnings
$ 149,441.80
Total Liabilities and Shareholder\'s equity
$ 736,141.80
| Schedule of expected cash collection | ||||
| January | February | March | Quarter | |
| Cash Sales | $ 80,600.00 | $ 120,000.00 | $ 63,000.00 | $ 263,600.00 |
| Credit Sales | $ 214,400.00 | $ 322,400.00 | $ 480,000.00 | $ 1,016,800.00 |
| Total collection | $ 295,000.00 | $ 442,400.00 | $ 543,000.00 | $ 1,280,400.00 |
