PROBLEM #5
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
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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.
