1Hillyard 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: 
2As of December 31 (the end of the prior quarter), the company’s general ledger showed the following account Balances 
 Cash   48000     
 Account Receivable  224000     
 Inventory   60000     
 Building and Equipment 370000     
 Account Payable   93000    
 Capital Stock   500000    
 Retained Earnings   109000    
 Totals  $702000702000    
3Actual sales for December and budgeted sales for the next four months are as follows:  
 Dec-10 $280,000       
 Jan-11 400000       
 Feb-11 600000       
 Mar-11 300000       
 Apr-11 200000       
3Sales 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.  
4The company’s gross margin is 40% of sales. (In other words, cost of goods sold is 60% of sales.) 
5 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 for the quarter.   
6 Each month’s ending inventory should equal 25% of the following month’s cost of goods sold. 
7One-half of a month’s inventory purchases is paid for in the month of purchase; the other half is paid 
 in the following month.       
8During 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.    
9 During January, the company will declare and pay $45,000 in cash dividends.   
10Management 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  at the beginning of each   
 month. The interest rate on these loans is 12% 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.       
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