Problem 8-31 Completing a Master Budget [LO8-2, LO8-4, LO8-7,LO8-8, LO8-9, LO8-10]

Hillyard Company, an office supplies specialty store, preparesits master budget on a quarterly basis. The following data havebeen assembled to assist in preparing the master budget for thefirst quarter:

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

Cash	$	54,000
Accounts receivable		211,200
Inventory		59,850
Buildings and equipment (net)		364,000
Accounts payable			$	89,325
Common stock				500,000
Retained earnings				99,725
	$	689,050	$	689,050

2. Actual sales for December and budgeted sales for the next fourmonths are as follows:

December(actual)	$	264,000
January	$	399,000
February	$	596,000
March	$	311,000
April	$	207,000

3. Sales are 20% for cash and 80% on credit. All payments on creditsales are collected in the month following sale. The accountsreceivable at December 31 are a result of December creditsales.

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

5. Monthly expenses are budgeted as follows: salaries and wages,$29,000 per month: advertising, $67,000 per month; shipping, 5% ofsales; other expenses, 3% of sales. Depreciation, includingdepreciation on new assets acquired during the quarter, will be$44,340 for the quarter.

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

7. One-half of a month’s inventory purchases is paid for in themonth of purchase; the other half is paid in the followingmonth.

8. During February, the company will purchase a new copy machinefor $2,400 cash. During March, other equipment will be purchasedfor cash at a cost of $77,000.

9. During January, the company will declare and pay $45,000 in cashdividends.

10. Management wants to maintain a minimum cash balance of $30,000.The company has an agreement with a local bank that allows thecompany to borrow in increments of $1,000 at the beginning of eachmonth. The interest rate on these loans is 1% per month and forsimplicity we will assume that interest is not compounded. Thecompany would, as far as it is able, repay the loan plusaccumulated interest at the end of the quarter.

Required:

Using the data above, complete the following statements andschedules for the first quarter:

1. Schedule of expected cash collections:

2-a. Merchandise purchases budget:

2-b. Schedule of expected cash disbursements for merchandisepurchases:

3. Cash budget: