Problem 8-31 Completing a Master Budget [LO8-2, LO8-4, LO8-7, LO8-8, LO8-9, LO8-
ID: 2543823 • Letter: P
Question
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, 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 Cash Accounts receivable Inventory Buildings and equipment (net) Accounts payable Common stock Retained earnings $ 48,000 206,400 58,950 358,000 $ 87,525 500,000 83,825 $ 671,350 671,350 b. Actual sales for December and budgeted sales for the next four months are as follows December (actual) January February March $ 258,000 $393,000 $590,000 $304,0e0 $ 201,000 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 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, $23,000 per month: advertising, $63,000 per month, shipping, 5% of sales, other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $43,380 for the quarter Each month's ending inventory should equal 25% 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 h. During February, the company will purchase a new copy machine for $1,800 cash. During March, other equipment will be purchased for cash at a cost of $74,000 i. During January, the company will declare and pay $45,000 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 allowsExplanation / Answer
Income Statement Sales 1287000 Less: Cost of Goods Sold -Beginning Inventory (From Pur Budget) 58950 Add: '-Purchase (From Pur Budget) 743400 Goods Available for sale 802350 Less: '-Ending Inventory 30150 772200 Gross Margin 304000-182400 514800 Less: Selling and Admin -Salaries 69000 -Advertising 189000 -Shipping 5% of sale 64350 -Depreciation 43380 -Other 3% of sale 38610 404340 Net Operating Income (514800-404340) 110460 Interes Expense (From cash Budget) 200 Net Income (110460-200) 110260 Cash Budget Jan Feb Mar Beginning Cash Balance 48000 30360 39535 Add: Collection from Customers 285000 432400 532800 Total Cash Available 333000 462760 572335 Less Disbursment -Pur For inventory 220200 288225 166950 -Salaries 23000 23000 23000 -Advertising 63000 63000 63000 -Shipping 5% of sale 19650 29500 15200 -Other 3% of sale 11790 17700 9120 -Copy Machine 1800 -Equipment 74000 Dividend Payment 45000 Total Cash Needs 382640 423225 351270 Excess/(Deficiency) of cash -49640 39535 221065 Financing: Borrowing (30000 min balance+49640 deficiency) 80000 Repayment (80000) 80000 Interest 80000*1%*3months 200 Ending Cash Balance 30360 39535 140865 1. Expected Cash Collection' Dec Jan Feb Mar Apr Quarter Total Sale 258000 393000 590000 304000 201000 1287000 Cash Sales A 20% 51600 78600 118000 60800 40200 257400 Sales on Account: 80% 206400 314400 472000 243200 992800 Total Cash Collection (A+B+C+D+E+F) 285000 432400 532800 2a. Purchases budget Dec Jan Feb Mar Apr Budgeted cost of goods sold 60% of sale 154800 235800 354000 182400 120600 Add: Ending Inventory 25% of subsequent month COGS 58950 88500 45600 30150 Total Needs 324300 399600 212550 Less: Beginning Inventory Closing of last month is beginging 58950 88500 45600 30150 Required Inventory Purchase 265350 311100 166950 2b. Cash Disbursment Schedule Dec Jan Feb Mar Beginning Accounts Payable 87525 Jan Purchase (50% in same & 50% in next month) of Inventory purcase in Part 2a 132675 155550 83475 Feb Purchase 132675 83475 Mar Purchase Total Cash Disbursment 220200 288225 166950