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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:
|
| a. |
As of December 31 (the end of the prior quarter), the company's general ledger showed the following account balances:
|
| Â |
Debits |
Credits |
| Cash |
$43,500 |
 |
| Accounts receivable |
203,250 |
 |
| Inventory |
49,080 |
 |
| Buildings and equipment (net) |
411,570 |
 |
| Accounts payable |
 |
$93,900 |
| Capital stock |
 |
500,000 |
| Retained earnings |
 |
113,500 |
| Â |
|
| Â |
$707,400 |
$707,400 |
| Â |
|
|
| b. |
Actual sales for December and budgeted sales for the next four months are as follows: |
| Â |
 |
| December (actual) |
$271,000 |
| January |
$409,000 |
| February |
$618,000 |
| March |
$318,000 |
| April |
$209,000 |
|
| c. |
Sales are 25% for cash and 75% 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.
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| d. |
The company's gross margin is 40% of sales. (In other words, cost of goods sold is 60% of sales.) |
| e. |
Monthly expenses are budgeted as follows: salaries and wages, $27,900 per month: advertising, $70,900 per month; shipping, 4% of sales; other expenses, 2% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $46,500 for the quarter.
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| f. |
Each month's ending inventory should equal 20% of the following month's 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 in the following month.
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| h. |
During February, the company will purchase a new copy machine for $2,600 cash. During March, other equipment will be purchased for cash at a cost of $80,000.
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| i. |
During January, the company will declare and pay $45,900 in cash dividends. |
| j. |
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 2% 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.
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Requirement 4: |
