Posted: July 14th, 2016

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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:

1 As of December 31, (the end of the prior quarter), the company’s general ledger showed the following account balances:
2 Cash $48,000 (debit)
3 Accounts receivable $224,000 (debit)
4 Inventory $60,000 (debit)
5 Buildings and equipment, net $370,000 (debit)
6 Accounts payable $93,000 (credit)
7 Capital stock $500,000 (credit)
8 Retained earnings $109,000 (credit)
9 Actual sales for December and budgeted sales for the next four months are as follows: December $280,000, January $400,000, February $600,000, March $300,000 and April $200,000.
10 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.
11 The company’s gross margin is 40% of sales. (In other words, cost of goods sold is 60% of sales.)
12 Monthly expenses are budgeted as follows: salaries and wages, $27,000 per month; advertising, $70,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $42,000 per quarter.
13 Each month’s ending inventory should equal 25% of the following month’s cost of goods sold.
14 One half of the month’s inventory purchases is paid for in the month of purchase; the other half is paid in the following month.
15 During February, the company will purchase a new copy machine for $1,700 cash. During March, other equipment will be purchased for cash at a cost of $84,500.

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