ABC Company, a retailer, prepares its master budget on a quarterly basis. The following data has been

MASTER BUDGET PROBLEM

ABC Company, a retailer, prepares its master budget on a quarterly basis.  The following data has been assembled to assist in preparation of the master for the first quarter.

            a.         As of December 31 (the end of the prior quarter), the company’s general ledger showed the following account balances.

            ASSETS                                                                     LIABILITIES AND EQUITY

Cash                                       $ 48,000                                                                Accounts Payable                               $ 93,000

Accounts Receivable         224,000                                                Capital Stock                                       500,000

Inventory                                60,000                                                                Retained Earnings                               109,000

Buildings and Equipment

    (net of depreciation)      370,000

TOTAL ASSETS                $702,000                               TOTAL LIABILITIES AND EQUITY         $702,000

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

                        December (actual)                                         $280,000

                        January                                                            400,000

                        February                                                          600,000

                        March                                                               300,000

                        April                                                                 200,000

c.         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.

d.         The Company’s gross profit rate is 40% of sales.

e.         Monthly expenses are budgeted as follows:  salaries and wages, $27,000 per month; advertising, $70,000 per month; shipping, 5% of sales; depreciation, $14,000 per month; other expenses, 3% of sales.

f.          At the end of each month, inventory is to be on hand equal to 25% of the following month’s sales needs, stated at cost.

g.         One-half of a month’s inventory purchases is paid for in the month of purchase; the other half is paid for in the following month.

h.         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.

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

j.          The company must maintain a minimum cash balance of $30,000.  An open line of credit is available at a local bank for any borrowing that may be needed during the quarter.  All borrowing is done at the beginning of the month and all repayments are made at the end of a month.  Borrowings and repayments of principal must be in multiples of $1,000.  Interest is paid only at the time of payment of principal.  The annual interest rate is 12%.

REQUIRED:  Using the above data, complete the following:

1.      Schedule of Expected Cash Collections

2.      Inventory Purchases Budget

3.      Schedule of Cash Disbursements for Purchases

4.      Schedule of Cash Disbursements for Expenses

5.      Cash Budget

6.      Income Statement for quarter ending March 31

7.      Balance Sheet as of March 31