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 42,000 Accounts receivable 201,600 Inventory 58,050 Buildings and equipment (net) 352,000 Accounts payable 85,725 Common stock 500,000 Retained earnings 67,925 653,650 653,650 b. Actual sales for December and budgeted sales for the next four months are as follows: December (actual) 252,000 January 387,000 February 584,000 March 298,000 April 195,000 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, $17,000 per month; advertising, $57,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $42,420 for the quarter. f. 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 $1,200 cash. During March, other equipment will be purchased for cash at a cost of $71,000. 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 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 Using the data above, complete the following statements and schedules for the first quarter: 1. Schedule of expeted cash collections: Hillyard Company Schedule of Expected Cash Collections January February March Quarter Cash sales 77,400 77,400 Credit sales 201,600 201,600 Total collections 279,000 279,000 2-a. Merchandise purchases budget: Hillyard Company Merchandise Purchases Budget January February March Quarter Budgeted cost of goods sold 232,200* 350,400 Add desired ending inventory 87,600† Total needs 319,800 350,400 Less beginning inventory 58,050 Required purchases 261,750 *$387,000 sales x 60% cost ratio = $232,200. †$350,400 × 25% = $87,600. 2-b. Schedule of expected cash disbursements for merchandise purchases: Hillyard Company Schedule of Expected Cash Disbursements for Merchandise Purchases January February March Quarter December purchases 85,725 January purchases 130,875 130,875 February purchases March purchases Total cash disbursements for purchases 3. Cash budget. (Cash deficiency, repayments and interest should be indicated by a minus sign.) Hillyard Company Cash Budget January February March Quarter Beginning cash balance 42,000 Add cash collections 279,000 Total cash available 321,000 Less cash disbursements: Purchases of inventory 216,600 Selling and administrative expenses 104,960 Purchases of equipment Cash dividends 45,000 Total cash disbursements 366,560 Excess (deficiency) of cash (45,560) Financing: Borrowings Repayments Interest Total financing Ending cash balance 4. Prepare an absorption costing income statement for the quarter ending March 31. Hillyard Company Income Statement For the Quarter Ended March 31 Cost of goods sold Selling and administrative expenses: 5. Prepare a balance sheet as of March 31. Hillyard Company Balance Sheet March 31 Assets Current assets: Total current assets Total assets Liabilities and Stocholders' Equity Current liabilities Stockholders' equity Total liabilities and stockholders' equity