accounting 565 – Essay Writers

Hillyard Company (50 points)

 

 

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 $48,000 (debit)Accounts receivable $224,000 (debit)Inventory $60,000 (debit)Buildings and equipment, net $370,000 (debit)Accounts payable $93,000 (credit)Capital stock $500,000 (credit)Retained earnings $109,000 (credit)

Actual sales for December and budgeted sales for the next four months are as follows:  December $280,000, January $400,000, February $600,000, March $300,000 and April $200,000.
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, $27,000 per month; advertising, $70,000 per month; shipping, 5% of sales; other expenses, 3% of sales.  Depreciation, including depreciation on new assets acquired during the quarter, will be $42,000 per quarter.
Each month’s ending inventory should equal 25% of the following month’s cost of goods sold.
One half of the 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 $1,700 cash.  During March, other equipment will be purchased for cash at a cost of $84,500.
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:

Schedule of expected cash collections

Schedule of Expected Cash Collections

 
January
February
March
Quarter

Cash sales
$80,000
 
 
 

Credit sales
$224,000
 
 
 

Total Collections
$304,000
 
 
 

Merchandise purchases budget:

Merchandise Purchases Budget

 
January
February
March
Quarter

Budgeted Cost of Goods Sold
$240,000*
$360,000
 
 

Add desired ending inventory
$90,000**
 
 
 

Total needs
$330,000
 
 
 

Less beginning inventory
$60,000
 
 
 

Required purchases
$270,000
 
 
 

*$400,000 sales x 60% cost ratio = $240,000** $360,000 x 25% = $90,000

Schedule of Expected Cash Disbursements-Merchandise Purchases

 
January
February
March
Quarter

December purchases
$93,000
 
 
$93,000

January purchases
$135,000
$135,000
 
$270,000

February purchases
 
 
 
 

March purchases
 
 
 
 

Total disbursements
$228,000
 
 
 

Complete the following:

Schedule of Expected Cash Disbursements-Selling and Administrative Expenses

 
January
February
March
Quarter

Salaries and wages
$27,000
 
 
 

Advertising
$70,000
 
 
 

Shipping
$20,000
 
 
 

Other expenses
$12,000
 
 
 

Total disbursements
$129,000
 
 
 

Complete the following cash budget:

Cash Budget

 
January
February
March
Quarter

Cash balance, beginning
$48,000
 
 
 

Add cash collections
$304,000
 
 
 

Total cash available
$352,000
 
 
 

Less cash disbursements
 
 
 
 

     For inventory
$228,000
 
 
 

     For selling and admin expenses
$129,000
 
 
 

     For purchase of equipment
——
 
 
 

     For cash dividends
$45,000
 
 
 

Total cash disbursements
$402,000
 
 
 

Excess (deficiency) of cash
($50,000)
 
 
 

Financing needed
 
 
 
 

Cash balance, ending
 
 
 
 

 

 

 
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