Near the end of 2011, the management of Simid Sports Co, a merchandising company
ID: 2376490 • Letter: N
Question
Near the end of 2011, the management of Simid Sports Co, a merchandising company, prepared the following estimated balance sheet
for December 31, 2011
Simid Sports Company
Estimated Balance Sheet
December 31,2011
Assets
Cash $35,500
Accounts Receivable 520,000
Inventory 150,000
Total Current Assets 705,500
Equipment $537,000
Less accumulted depreciation 67,125 469,875
Total Assets $1,175,375
Liabilities and Equity
Accounts Payable $355,000
Bank loan payable 16,000
Taxes payable (due 33/15/2012) 90,000
Total liabilities $461,000
Common Stock 475,000
Retained Earnings 239,375
Total stockholders equity 714,375
Total liabilities and equity $1,175,375
To prepare a master budget for January, February and March 2012, management gathers the following information
a. Simid Sprts single product is purchased for $30 per unit and resold for $53 per unit. The expected inventory level of 2,500 units on
December 1,2011, is more than management's desired level for 2012, which is 20% of the next months expected sales (in units). Expected
sales are: January, 7,500 units, February, 8,500 units, March, 11,000 units, and April, 9,000 units.
b. Cash slaes nd credit sales represent 20% and 80%, respectively, of total sales. Of the credit sales, 61% is collected in the first month after
the month of sale and 39% in the second month, after the month of sale. For the December 31, 2011, accounts receivable balance, $125,000 is
collected in January and the remaining $395,000 is collected in February.
c. Merchandise purchases are paid for as follows: 20% in the first month after the month of purchase and 80% in the second month after the
month of purhase. For the December 31, 201, accounts payable balance, $75,000 is paid in January and the remaining $280,000 is paid in
February.
d. Sales commissions equal to 20% of sales ar paid each month. Sales salaries (excluding commissions) are $90,000 per year.
e. general and administrative salaries are $156,000 per year. Maintenance expense equals $2,000 per month and is paid in cash.
f. Equipment reported in the December 31, 2011, balance sheet was purchased January 2011. It is being depreciated over eight years under
the straight-line method with no salvage value. The following amounts for new equipment purchases are planned in the coming quarter:
January, $34,000, February, $96,000, and March, $30,000. This equipment will be depreciated under the straight-line method over eight years
with no salvage value. A full month's deprecation is taken for the month is which the equipment is purchased.
g. The company plans to acquire land at the end of March at a cost of $140,000, which will be paid with cash on the last day of the month.
h. Simid Sports has a working arrangement with its bank to obtain additional loans as needed. The interest rate is 12% per year, and interest is paid at the end of each month-end based on the beginning balance. Partial or full payments on these loans can be made on the last day of the month.
The company has agreed to maintain a minimum ending cash balance of $12,840 each month.
i. The income tax rate for the company is 39%. Income taxes on the first quarter's income will not be paid until Apri l15.
Required.
Prepare a master budget for each of the first three months of 2012; include the following component budgets (show supporting calcuations as
needed, and round amounts to the nearest dollar).
1. Monthly cash budgets.
2. Budgeted income statement for the entire first quarter (not for each month)
3. Budget balance sheet as of March 31, 2012.
Explanation / Answer
SIMID SPORTS COMPANY SALES BUDGETS JANUARY- MARCH Units
January 2012
Budgeted 2012 3,500
February 2012 4,500
March 2012 5,500
Total for the first quarter 13,500
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2. Budgeted Unit Price x $55 x $55 x $55 x $55
Budgeted Total Dollars $192,500 $247,500 $302,500 $742,500
Monthly merchandise purchases budgets (template from 7.8)
January February March Next months budgeted sales 4,500 5,500 5,000
Ratio of inventory to future sales x 20% x 20% x 20%
Budgeted ending inventory 900 1,100 1,000
Add budgeted sales 3,500 4,500 5,500
Required available merchandise 4,400 5,600 6,500
Deduct beginning inventory -2,500 -900 -1,100
Units to be purchased 1,900 4,700 5,400
Budgeted cost per unit X $30 X $30 X $30
Budgeted merchandise purchases $ 57,000 $141,000 $162,000
3. Monthly selling expense budgets (template from 7.9)
January February March Budgeted sales $192,500 $247,500 $302,500
Sales commission % x 20% x 20% x 20%
Sales commission expense 38,500 49,500 60,500
Sales salaries 2,500 2,500 2,500
Total selling expenses $41,000 $52,000 $63,000
Total $742,500 x 20 $148,500 7,500 $156,000
4. Monthly general and administrative expense budgets (template from 7.10)
January February March Total Salaries $ 6,000 $ 6,000 $ 6,000 $18,000
Depreciation $3,000 $ 3,500 $ 3,650 10,150
Total expenses $9,000 $9,500 $9,650 (Maint 1,000 x months) = $31,150
5. Monthly capital expenditure budgets (New equipment + land purchased in March) January February March Equipment $18,000 $48,000 $14,400 Land 75,000 Total $18,000 $48,000 $89,400
6. Monthly cash budgets
January February Beginning cash balance 18,000 15,050
Cash receipts from customers 110,625 348,500
Total cash available 128,625 363,550
Cash disbursements
Payments for merchandise
Sales commissions
Sales salaries G&A salaries (72,00012)
Maintenance expense
Interest on loan
Taxes
Purchases of equipment Purchase of land Total cash disbursements
Preliminary cash balance
Repayment of loan to bank Balance 40,000 38,500 2,500 6,000 1,000 75 151,400 49,500 2,500 6,000 1,000 18,000 48,000 March 105,150 244,750 349,900 73,800 60,500 2,500 6,000 1,000 106,075 258,400 45,000 14,400 75,000 278,200 22,550 -7,500 $15,050 105,150 _______ $105,150 71,700 ________ $71,700 7.
8. Budgeted income statement for the entire first quarter (not for each month)
Sales $742,500
Cost of goods sold 405,000
Gross profit 337,500
Operating expenses Sales commissions $148,500
Sales salaries 7,500
General administrative salaries 18,000
Maintenance expense 3,000
Depreciation expense 10,150
Interest expense 75 187,225
Income before taxes 150,275
Income taxes 60,110
Net income $ 90,165
Budgeted balance sheet as of March 31, 2012.
Assets Cash Accounts receivable Inventory Total current assets Land Equipment Less accumulated depreciation Total assets Liabilities and equity Accounts payable Taxes payable Total liabilities Common stock Retained earnings stockholders equity Total liabilities and equity $71,700 301,125 30,000 402,825 75,000 $350,400 43,900 306,500 $784,325 $ 274,800 60,110 334,910 $236,250 213,165 449,415 $784,325
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