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Barrowman Company 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:
 


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


Cash                                                                                                   $48,000


Accounts Receivable                                    224,000


Inventory                                                     60,000


Buildings & Equipment (net)                        370,000


Accounts Payable                                                                       $93,000


Paid In Capital                                                                           500,000


Retained Earnings                                                                                109,000
                                                               $702,000                              $702,000


b.           

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



December                           $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 the sale (no doubtful accounts are anticipated). 

Accounts receivable reflect only inventory sales (no other types of sales are included).



d.            The company’s gross profit (gross margin) rate is 40%



e.           

Monthly cash expenses are budgeted as follows:

                shipping = 5% of sales
               

advertising = $70,000 per month
                salaries & wages = $27,000 per month
               

other expenses = 3% of sales
     depreciation for the quarter is budgeted at $42,000


f.            

Each month’s ending inventory is budgeted at 25% of the following month’s cost of goods sold.


g.            One-half of a month’s inventory purchases is paid for up front at the time of purchase; the other half is paid in the next month. 

Accounts payable relates solely to inventory (no other types of purchases are included in AP.



h.            During February, the company will purchase a copier for $1,700 in cash. 

During March, additional 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.             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 a month, and all repayments are made at the end of a month. 

The company must maintain a minimum cash balance of $30,000.   

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%.