Hillyard Company, an office supplies specialty store, prepares its master budget

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 preparation of 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:

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.

Monthly expenses are budgeted as follows: salaries and wages, $25,000 per month; advertising, $68,000 per month; shipping, 5% of sales; depreciation, $15,000 per month; other expenses, 3% of sales.

At the end of each month, inventory is to be on hand equal to 25% of the following month’s sales needs, stated at cost.

One-half of a month’s inventory purchases are paid for in the month of purchase; the other half are paid for in the following month.

During February, the company will purchase a new copy machine for $1,500 cash. During March, other equipment will be purchased for cash at a cost of $81,500.

The company must maintain a minimum cash balance of $31,000. An open line of credit is available at a local bank for any borrowing that may be needed during the quarter. All borrowing is done at the beginning of a month, and all repayments are made at the end of a month. Borrowings and repayments of principal must be in multiples of $1,000. Interest is paid only at the time of payment of principal. The annual interest rate is 12%. (Figure interest on whole months, e.g., 1/12, 2/12.)

      

          

          

      

Cash budget. (Roundup "Borrowing" and "Repayments" answers to the nearest whole dollar amount. Any "Repayments" and "Interest" should be indicated by a minus sign.)

      

      

      

Hillyard Company, an office supplies specialty store, prepares its master budget on a quarterly basis. The following data have been assembled to assist in preparation of the master budget for the first quarter:

Explanation / Answer

1. Schedule of expeted cash collections

2a Inventory purchase budget

2b Schedule of cash disbursements for purchases

3 Schedule of cash disbursement for expenses

4. Cash Budget

Interest= 2,000*12%*2/12= 40

85,000*12%*3/12= 2550

5 Income statement fo the quarter ended March 31

6. Balance Sheet as of march 31

January February March Sales 420,000 680,000 310,000 Cash sales @ 20% (A) 84,000 136,000 62,000 Credit Sales @ 80% 336,000 544,000 248,000 Collection from debtors (Credit sales of previous month) (B) 224,000 336,000 544,000 Total cash collection (A+B) 308,000 472,000 606,000

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