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Master Budget Preparation

Chapter $9$

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:

a$.$ As of December $31($the end of the prior quarter$),$ the company$$s general

ledger showed the following account balances:

Debits Credits

Cash $ $48,000$

Accounts Receivable $224,000$

Inventory $60,000$

Buildings and Equipment $($net$)370,000$

Accounts Payable $ $93,000$

Capital Stock $500,000$

Retained Earnings $109,000$

$ $702,000$ $ $702,000$

b$.$ Actual sales for December and budgeted sales for the next four months are as

follows:

December $($actual$)$ $ $280,000$

January $400,000$

February $600,000$

March $300,000$

April $200,000$

c$.$ 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.

d$.$ The company$$s gross profit rate is $40\%$ of sales.

e$.$ Monthly expenses are budgeted as follows: salaries and wages, $$27,000$ per

month: advertising, $$70,000$ per month; shipping, $5\%$ of sales; depreciation,

$$14,000$ per month; other expense, $3\%$ of sales.

f$.$ 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$($i$.$e$.$ cost of goods sold$).$

g$.$ One$-$half of a month$$s inventory purchases is paid for in the month of

purchase; the other half is paid for in the following month.

h$.$ 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.$

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

j$.$ The company must maintain a minimum cash balance of $$30,000.$ 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$.,1/12,2/12).$

Required:

Prepare a master budget.

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