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:

1. 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)

2. 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.
3. 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.
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, $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.
6. Each month’s ending inventory should equal 25% of the following month’s cost of goods sold.
7. 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.
8. 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.
9. During January, the company will declare and pay $45,000 in cash dividends.
10. 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:

Schedule of Expected Cash Collections

January

February

March

Quarter

Cash sales

$80,000

Credit sales

$224,000

Total Collections

$304,000

Using the data above, complete the following statements and schedules for the first quarter. Submit your responses in an Excel spreadsheet:

1. Schedule of expected cash collections
2. 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

1. Schedule of expected cash disbursements-merchandise purchases

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

1. Schedule of expected cash disbursements-selling and administrative expenses

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

1. 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

Provide your answers in a clearly organized Excel spreadsheet. Provide your answers in a clearly organized Excel spreadsheet