5. Prepare a balance sheet as of March 31.Hillyard Company, an office supplies s

Question

5. 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:

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

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

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, $35,000 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 $45,300 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 $3,000 cash. During March, other equipment will be purchased for cash at a cost of $80,000.

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.

3. Cash budget. (Cash deficiency, repayments and interest should be indicated by a minus sign.)

4. Prepare an absorption costing income statement for the quarter ending March 31.

Debit Credit Cash $ 60,000 Accounts receivable 216,000 Inventory 60,750 Buildings and equipment (net) 370,000 Accounts payable $ 91,125 Common stock 500,000 Retained earnings 115,625 $ 706,750 $ 706,750

Explanation / Answer

Required Budgets are as prepared below:

Hillyard Company Schedule of expected Cash collections For the quarter ended March 31 Month Particulars January February March Total April Sales 4,05,000 6,02,000 3,17,000 13,24,000 2,13,000 Beginning Accounts Receivable December Credit sales (270,000*.8) 2,16,000 2,16,000 January sales 81000 3,24,000 4,05,000 February sales 1,20,400 4,81,600 6,02,000 March sales 63,400 63,400 Total collections 2,97,000 4,44,400 5,45,000 12,86,400 Account receivable for March sale 2,53,600 Hillyard Company Merchandise Purchase Budget For the quarter ended March 31 Month Particulars January February March Total Cost of goods sold (60% of sales) 2,43,000 3,61,200 1,90,200 7,94,400 1,27,800 Add: Desired Ending merchandise inventory (25% of next month COGS) 90,300.0 47,550.0 31,950.0 31,950 Total needs 3,33,300 4,08,750 2,22,150 8,26,350 Less: beginning merchandise inventory 60,750 90,300 47,550 60,750 Required purchase 2,72,550 3,18,450 1,74,600 7,65,600 Hillyard Company Schedule of expected Cash payments For the quarter ended March 31 Month Particulars January February March Total Beginning Accounts Payable (a) $91,125 $91,125 January Purchases (b) $1,36,275 $1,36,275 $2,72,550 February Purchases (c ) $1,59,225 $1,59,225 $3,18,450 March Purchases (d) $87,300 $87,300 Total payments (a+b+c+d) $2,27,400 $2,95,500 $2,46,525 $7,69,425 Hillyard Company Cash Budget For the quarter ended March 31 Month Particulars January February March Total Beginning Cash balance 60,000 30,200 31,940 60,000 Add: Collection from customers $2,97,000 $4,44,400 $5,45,000 12,86,400 cash available for use $3,57,000 $4,74,600 $5,76,940 $13,46,400 Less: cash Disbursements Merchandise purchase $2,27,400 $2,95,500 $2,46,525 7,69,425 Salaries and wages 35,000 35,000 35,000 1,05,000 Advertising 61,000 61,000 61,000 1,83,000 Shipping (5% of sales) 20,250 30,100 15,850 66,200 Other exp (3% of sales) 12,150 18,060 9,510 39,720 New Copy machine 0 3,000 0 3,000 Equipment purchase 0 80,000 80,000 Dividend paid 45,000 45000 Total disbusrement 4,00,800 4,42,660 4,47,885 12,91,345 Cash surplus/Deficit -43,800 31,940 1,29,055 55,055 Financing    Borrowing 74,000 74,000    Repayment -74,000 -74,000    Interest -1480 -1,480 Net cash from Financing 74,000 0 -75,480 -1,480 Budgeted ending cash balance 30,200 31,940 53,575 53,575 Hillyard Company Budgeted Income Statement For the quarter ended March 31 Particulars Amount ($) Amount ($) Sales 13,24,000 Less: Cost of goods sold (60% of sales) 7,94,400 Gross margin 5,29,600 Less: Selling and administartive exp Depreciation 45,300 Salaries and wages 1,05,000 Advertising 1,83,000 Shipping Charges 66,200 Other expenses 39,720 4,39,220 Net operating Income 90,380 Interest expense 1,480 Net Income 88,900 Dividend Paid 45,000 Net Income 43,900 Hillyard Company Budgeted balance Sheet Mar-31 Assets Cash 53,575 Accounts Receivable 2,53,600 Inventory 31,950 Property and equipment Net 4,07,700 Total assets 7,46,825 Liabilities and Stockholders' Equity Accounts Payable purchases 87,300 Common Stock 5,00,000 Retained earnings 1,59,525 Total liabilities and stockholders' equity 7,46,825

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