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Homework answers / question archive / Hillyard Company, an office supplies specialty store, prepares its master budget on a quarterly basis

Hillyard Company, an office supplies specialty store, prepares its master budget on a quarterly basis

Accounting

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:

a.As of December 31 (the end of the prior quarter), the company’s general ledger showed the following account balances:

       
Cash $

56,000

    
Accounts receivable  

212,800

    
Inventory  

60,150

    
Buildings and equipment (net)  

366,000

    
Accounts payable     $

89,925
Common stock      

500,000
Retained earnings      

105,025
  $

694,950

 $

694,950

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

   
December(actual) $

266,000
January $

401,000
February $

598,000
March $

313,000
April $

209,000
 

  1. 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.

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

  3. Monthly expenses are budgeted as follows: salaries and wages, $31,000 per month: advertising, $65,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $44,660 for the quarter.

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

  5. 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.

  6. During February, the company will purchase a new copy machine for $2,600 cash. During March, other equipment will be purchased for cash at a cost of $78,000.

  7. During January, the company will declare and pay $45,000 in cash dividends.

  8. 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.

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1.

schedule of expected cash collections
particulars january february march quarter
cash sales(20%) 80200 119600 62600 262400
credit sales 212800 320800 478400 1012000
total collections 293000 440400 541000 1274400

credit sales collections=80% of previous month's sale

2a.

merchandise purchase budget
particulars january february march quarter
budgetted cost of goods sold 240600 358800 187800 787200
add:desired ending inventory 89700 46950 31350 31350
total needs 330300 405750 219150 818550
less:beginning inventory 60150 89700 46950 60150
required purchases 270150 316050 172200 758400

desired ending inventory=25% of following month's cost of goods sold

opening inventory=closing inventory of previous month

2b.

schedule of expected cash disbursemnents for merchandise purchases
particulars january february march quarter
december purchases 89925     89925
january purchases 135075 135075   270150
february purchases   158025 158025 316050
march purchases     86100 86100
total cash disbursements for purchases 225000 293100 244125 762225

payment for purchase is 50% during the month of purchase and remaining 50% in the following month.

3.

cash budget
particulars january february march quarter
beginning cash balance 56000 30920 31780 56000
add:collections from customers 293000 440400 541000 1274400
total cash available 349000 471320 572780  
less:cash disbursements:        
inventory purchases 225000 293100 244125 762225
selling and administrative expenses 128080 143840 121040 392960
equipment purchases   2600 78000 80600
cash dividends 45000     45000
total cash disbursements 398080 439540 443165  
excess(deficiency)of cash -49080 31780 129615  
financing:        
borrowings 80000     80000
repayments     80000 80000
interest     2400 2400
total financing        
ending cash balance 30920 31780 47215  

notes:-

a)interest on loan for 3 months=80000x1%x3=2400.

b) deprecioation is a non cash expenses and hence not included in cash budget.

4.

income statement for quarter ended march 31
sales revenue   1312000
cost of goods sold:-    
opening inventory 60150  
add:purchases during the quarter 758400  
less:closing inventory 31350 787200
gross income   524800
selling and administrative expenses:    
salaries and wages 93000  
advertising 195000  
shipping 65600  
other expenses 39360  
depreciation 44660  
dividend 45000  
interest on loan 2400 485020
net income   39780

only interest paid on loan wil include in income statement.

5.

balancesheet as on march 31
assets
current assets:-    
cash   47215
inventory   31350
accounts receivable   250400
total current assets   328965
total fixed assets   401940
total assets   730905
liabilities and stockholder's equity
current loiabilities:    
accounts payable 86100  
loans payable   86100
stock holder's equity:    
common stock 500000  
retained earnings 144805 644805
total liabilities and stockholders equity   730905

retained earnings closing balance=opening balance of retained earnings+net of the current year

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