PROBLEM - Hillyard Company prepares its master budget on a quarterly basis. The following data have been assembled to assist in preparation of the master budget for the first quarter of 2014:
a. As of December 31, 2013, the company's balance sheet showed the following account balances:
Cash $48,000 Accounts Payable $93,000
Accounts Receivable 156,800 Capital Stock 400,000
Less: Allowance for bad debt (4,480) $152,320 Retained Earnings 137,320 Inventory 60,000
Plant & Equipment (net) 370,000
$630,320 $630,320
b. Actual sales for December and budgeted sales for the next four months are as follows:
Dec.-$280,000 Jan.-$400,000 Feb.-$600,000 Mar.-$300,000 Apr.-$200,000
c. Sales are 20 percent for cash and 80 percent on credit. The collection pattern for credit sales, which is not expected to change over the next six months, is 30 percent in the month of sale, 68 percent one month after the month of sale, and 2 percent uncollectible.
d. The monthly gross profit rate is 40 percent of sales.
e. Monthly expenses are budgeted as follows: salaries and wages, $27,000 per month; advertising, $50,000 per month plus 4 percent of previous month's sales; and other expenses, 3% of sales. These expenses are paid for in the month in which they are incurred. Depreciation expense is $14,000 per month.
f. At the end of each month, inventory is to be on hand equal to 25 percent of the following month's sales needs stated at cost.
g. One half of a month's inventory purchases are paid for in the month of purchase; the other half is paid for in the following month.
h. During January, the company will purchase a new copy machine for $1,700 cash. During February, other equipment will be purchased for $80,000 (25% cash down payment with the remaining balance to be paid in four equal installments beginning one month after the date of purchase).
i. During January, the company will declare and pay $45,000 in cash dividends.
A. Prepare a well labeled Schedule of Expected Cash Collections (not an entire cash budget) for each month (January, February, and March) of the first quarter of 2014.
B. Prepare a well labeled Inventory Purchases Budget (in $) for each month (January, February, and March) of the first quarter of 2014.
C. Prepare a well labeled Schedule of Cash Disbursements (not an entire cash budget) for each month (January, February, and March) of the first quarter of 2014.
D. Assume that at the end of January, 2014, Hillyard Company's Cash Budget indicates a negative cash balance. Other than borrowing money, list at least three distinctly different recommendations for alleviating this expected negative cash balance.