FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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As of December 31 (the end of the prior quarter), the company’s general ledger showed the following account balances:

 

  Debits Credits
Cash $ 44,000  
Accounts receivable 203,200  
Inventory 58,350  
Buildings and equipment (net) 354,000  
Accounts payable   $ 86,325
Common stock   500,000
Retained earnings   73,225
  $ 659,550 $ 659,550

 

Actual sales for December and budgeted sales for the next four months are as follows:

 

December(actual) $ 254,000
January $ 389,000
February $ 586,000
March $ 300,000
April $ 197,000

 

  1. 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.

  2. The company’s gross margin is 40% of sales. (In other words, cost of goods sold is 60% of sales.)

  3. Monthly expenses are budgeted as follows: salaries and wages, $19,000 per month: advertising, $59,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $42,740 for the quarter.

  4. Each month’s ending inventory should equal 25% of the following month’s cost of goods sold.

  5. 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.

  6. During February, the company will purchase a new copy machine for $1,400 cash. During March, other equipment will be purchased for cash at a cost of $72,000.

  7. During January, the company will declare and pay $45,000 in cash dividends.

  8. 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.

 

Using the data above, complete the following statements and schedules for the first quarter:

2-b. Schedule of expected cash disbursements for merchandise purchases:

3. Cash budget:

Beginning cash balance
Add collections from customers
Total cash available
Less cash disbursements:
Inventory purchases
Selling and administrative expenses
Equipment purchases
Cash dividends
Total cash disbursements
Excess (deficiency) of cash
Financing:
Borrowings
Repayments
Interest
Total financing
Ending cash balance
Hillyard Company
Cash Budget
January
$
44,000
281,000
217,800
109,120
45,000
371,920
February
March
Quarter
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Transcribed Image Text:Beginning cash balance Add collections from customers Total cash available Less cash disbursements: Inventory purchases Selling and administrative expenses Equipment purchases Cash dividends Total cash disbursements Excess (deficiency) of cash Financing: Borrowings Repayments Interest Total financing Ending cash balance Hillyard Company Cash Budget January $ 44,000 281,000 217,800 109,120 45,000 371,920 February March Quarter
Schedule of Expected Cash Disbursements for Merchandise Purchases
January
February
March
December purchases
January purchases
February purchases
March purchases
Total cash disbursements for purchases
$
86,325
131,475
131,475
Quarter
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Transcribed Image Text:Schedule of Expected Cash Disbursements for Merchandise Purchases January February March December purchases January purchases February purchases March purchases Total cash disbursements for purchases $ 86,325 131,475 131,475 Quarter
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Follow-up Questions
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Follow-up Question

Using the data above, complete the following statements and schedules for the first quarter:

 

4. Prepare an absorption costing income statement for the quarter ending March 31.

5. Prepare a balance sheet as of March 31.

 

Answer choices for Income Statment

[rows 1, 9-15, 17]: (Accounts payable, Accounts receivable, Advertising, Buildings and equipment net, Cash, Common stock, Cost of goods sold, Depreciation, Interest expense, Note payable, Other expenses, Prepaid insurance, Rent, Retained earnings, Salaries and wages, Sales, Shipping)

[Rows 3-6]: (Beginning inventory, Ending inventory, Goods available for sale, Purchases)

Row 7: (Gross Loss, Gross margin)

Row 16: (Net operating income, Net operating loss)

Row 18: (Net income, Net loss)

Answer Choices for Balance sheet (all rows)

(Accounts payable, Accounts receivable, Buildings and equipment net, Cash, Common stock, Cost of goods sold, Interest expense, Inventory, Note payable, Prepaid insurance, Retained earnings)

Cost of goods sold:
Hillyard Company
Income Statement
For the Quarter Ended March 31
Selling and administrative expenses:
0
69
0
0
0
0
0
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Transcribed Image Text:Cost of goods sold: Hillyard Company Income Statement For the Quarter Ended March 31 Selling and administrative expenses: 0 69 0 0 0 0 0
Current assets:
Total current assets
Total assets
Current liabilities:
Accounts payable
Hillyard Company
Balance Sheet
March 31
Assets
Liabilities and Stockholders' Equity
Stockholders' equity:
Total liabilities and stockholders' equity
$
$
0
0
0
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Transcribed Image Text:Current assets: Total current assets Total assets Current liabilities: Accounts payable Hillyard Company Balance Sheet March 31 Assets Liabilities and Stockholders' Equity Stockholders' equity: Total liabilities and stockholders' equity $ $ 0 0 0
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Follow-up Questions
Read through expert solutions to related follow-up questions below.
Follow-up Question

Using the data above, complete the following statements and schedules for the first quarter:

 

4. Prepare an absorption costing income statement for the quarter ending March 31.

5. Prepare a balance sheet as of March 31.

 

Answer choices for Income Statment

[rows 1, 9-15, 17]: (Accounts payable, Accounts receivable, Advertising, Buildings and equipment net, Cash, Common stock, Cost of goods sold, Depreciation, Interest expense, Note payable, Other expenses, Prepaid insurance, Rent, Retained earnings, Salaries and wages, Sales, Shipping)

[Rows 3-6]: (Beginning inventory, Ending inventory, Goods available for sale, Purchases)

Row 7: (Gross Loss, Gross margin)

Row 16: (Net operating income, Net operating loss)

Row 18: (Net income, Net loss)

Answer Choices for Balance sheet (all rows)

(Accounts payable, Accounts receivable, Buildings and equipment net, Cash, Common stock, Cost of goods sold, Interest expense, Inventory, Note payable, Prepaid insurance, Retained earnings)

Cost of goods sold:
Hillyard Company
Income Statement
For the Quarter Ended March 31
Selling and administrative expenses:
0
69
0
0
0
0
0
expand button
Transcribed Image Text:Cost of goods sold: Hillyard Company Income Statement For the Quarter Ended March 31 Selling and administrative expenses: 0 69 0 0 0 0 0
Current assets:
Total current assets
Total assets
Current liabilities:
Accounts payable
Hillyard Company
Balance Sheet
March 31
Assets
Liabilities and Stockholders' Equity
Stockholders' equity:
Total liabilities and stockholders' equity
$
$
0
0
0
expand button
Transcribed Image Text:Current assets: Total current assets Total assets Current liabilities: Accounts payable Hillyard Company Balance Sheet March 31 Assets Liabilities and Stockholders' Equity Stockholders' equity: Total liabilities and stockholders' equity $ $ 0 0 0
Solution
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