Question

Hancock Company, a merchandisingcompany, prepares its master budget on a quarterly basis. Thefollowing data have been assembled to assist in preparation of themaster budget for the second quarter.

a. As of December 31(the end of the prior quarter), the company’s balance sheet showedthe following account balances:

Cash	$ 6,700
Accounts receivable	36,900
Inventory	11,130
Buildings and equipment (net)	120,000
Accounts payable			$ 32,880
Common stock			100,000
Retained earnings			41,850
	$174,730		$174,730

b. Actual andbudgeted sales are as follows:

December (actual)	$61,500
January	$79,500
February	$88,800
March	$89,400
April	$58,100

c. Sales are 40% forcash and 60% on credit. All payments on credit sales are collectedin the month following the sale. The accounts receivable atDecember 31 are a result of December credit sales.

d. The company’s grossmargin percentage is 30% of sales. (In other words, cost of goodssold is 70% of sales.)

e. Each month’s endinginventory should equal 20% of the following month's budgeted costof goods sold.

f. One-quarter of a month’sinventory purchases is paid for in the month of purchase; the otherthree-quarters are paid for in the following month. The accountspayable at December 31 are the result of December purchases ofinventory.

g. Monthly expenses areas follows: commissions, $12,150; rent, $2,650; other expenses(excluding depreciation), 8% of sales. Assume that these expensesare paid monthly. Depreciation is $2,550 for the quarter andincludes depreciation on new assets acquired during thequarter.

h. Equipment will beacquired for cash: $3,830 in January and $8,100 in February.

i. Management would like to maintaina minimum cash balance of $5,000 at the end of each month. Thecompany has an agreement with a local bank that allows the companyto borrow in increments of $1,000 at the beginning of each month,up to a total loan balance of $50,000. The interest rate on theseloans is 1% per month, and for simplicity, we will assume thatinterest is not compounded. The company would, as far as it isable, repay the loan plus accumulated interest at the end of thequarter.

Required:

Using the data above, complete thefollowing statements and schedules for the second quarter:

1. Schedule of expected cashcollections:

	January		February	March	Total
Cash sales	$31,800.00
Credit sales	36,900.00
Total collections	$68,700.00

2. a. Merchandise purchasesbudget:

	January		February	March	Total
Budgeted cost of goods	$55,650.00	*	$62,160.00
Add desired ending inventory	12,432.00	â€
Total needs	68,082.00
Less beginning inventory	11,130.00
Required purchases	$56,952.00
*$79,500.00 sales × 70% =$55,650.00.
†$88,800.00 × 70% × 20% =$12,432.00.

b. Schedule of expected cashdisbursements for merchandise purchases:

	January		February	March	Total
December purchases	$32,880.00	*			$32,880.00
January purchases	14,238.00		$42,714.00		56,952.00
February purchases	0.00
March purchases	0.00
Total cash disbursements forpurchases	$47,118.00
*Beginning balance of the accountspayable.

3. Schedule of expected cashdisbursements for selling and administrative expenses:

	January	February	March	Total
Commissions	$12,150.00
Rent	2,650.00
Other expenses	6,360.00
Total cash disbursements forselling and administrative expenses	$21,160.00

4. Cash budget:

	January	February	March	Total
Cash balance, beginning	$ 6,700.00
Add cash collections	68,700.00
Total cash available	75,400.00
Less cash disbursements:
For inventory	47,118.00
For operating expenses	21,160.00
For equipment	3,830.00
Total cash disbursements	72,108.00
Excess (deficiency) of cash	3,292.00
Financing
Etc.

5. Prepare an incomestatement for the quarter ending March 31 as shown in Chapter7.

6. Prepare a balancesheet as of March 31.

_______________________________________-

Can you tell me if I made anymistakes ?

			Schedule of Expected CashCollection
				January	February	March	Quarter
Cash Sales				31,800	35,520	35,760	103,080
Credit Sales				36,900	47,700	53,280	137,880
Total Cash Collection				68,700	83,220	89,040	240,960
			Merchadinse Purchase Budget
				January	February	March	Quarter
Budget COGS				55,650	62,160	62,580	180,390
Add: Desired EndingInventory				12,432	12,516	8,134	8,134
Total Needs				68,082	74,676	70,714	188,524
Less: Beginning Inventory				-11130	-12432	-12156	-11130
Requirede Purchase				56,952	62,244	58,558	177,394
			Schedue of Expected Cash Disbursment formerchandise purpose
				January	February	March	Quarter
For Dec. Purchase				32,800			32,800
For Jan. Purchase				12,238	42,714		56,952
For Feb. Purchase					15,561	46,683	62,244
For March Purchase						14,550	14,550
Total cash disbuersments forpurchase				47,118	58,275	61,233	166,626
			Schedule of Cash Expenses
				January	February	March	Quarter
Commission				12,150	12,150	12,150	36,450
Rent				$2,650	$2,650	$2,650	$7,950
Other Expenses				$6,360	7,104	7152	$20,616
Total Cash Disbursment forexpenses				21,160	21,904	21,952	65,016
				Cash Budget
				January	February	March	Quarter
Beginning Cash Balance				6,700	5,292	5,233	67,000
Add:
Cash Collection				68,700	83,220	89,040	240,960
Total Cash Available				75,400	88,512	94,273	307,960
Less: Cash Disbursment
Inventory Purchase				47,118	58,275	61,233	166,626
Operating Expenses				21,160	21,904	21,952	65,016
Equipment Purchase				3,830	8,100		11,930
Total Cash Disbursment				72,108	88,279	83,185	243,572
Excess of cash				3,292	233	11,088	4,089
Financing
Borrowing				2,000	5,000		7,000
Repayments						5000	-5000
Interest(2,000*0.03)+(3000*0.02)						120	-120
Total Financing				2,000	5,000	5,120
Cash Balance Ending				5,292	5,233	5,968	5,968
				Hancock Company Income Statement for the QuarterEndend March 30
Sales					257,200
COGS
BeginningInventory				11,130
Add Purchase				177,394
Goods availablefor Sale				188,524
Ending Inventory				8,134	180,390
Gross Margin					77,310
Other expenses
Commission				36,450
Rent				7,950
Depreciation				7,650
Other expenses				20,616	72,666
Net Operating Income					4,644
Interest Expenses					120
Net Income					4524
					Balance Sheet
Assets
Current Assets
Cash					5,968
Accountrecivable					53,640
Inventory					8,134
Total Current Assets					67,742
Building and Equpimentnet
(120,000+3830+8100-7650)					124,280
Total Assets					192,022
Liabilities and Equity
Accountpayable					43,648
Loan					2,000
StockHolder's Equity:
CapitalStock				100,000
RetainedEarnings				46,374	146,374
Total Liabilities andEquity					192,022