Question

In this assignment you are goingto prepare elements of the master budget for Hancock Company usingthe following information. You should prepare individually theanswers to the following. You should have a cover page and typeyour answers in excel or word.

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.