Near the end of 2011, the management of Simid Sports Co., a merchandising compan

Question

Near the end of 2011, the management of Simid Sports Co., a merchandising company, prepared the following estimated statement of financial position for December 31, 2011. SIMID SPORTS COMPANY Estimated Statement of Financial position December 31, 2011 Assets Cash Accounts receivable Inventory $36,500 520,000 95,000 Total current assets Equipment Less accumulated depreciation 651,500 474,250 $ 1,125,750 $542,000 67,750 Total assets Liabilities and Equity Accounts payable Bank loan payable Tax payable (due 3/15/2012) $345,000 14,000 91,000 $ 450,000 Total liabilities Share capital-ordinary Retained earnings 474,000 201,750 Total stockholders' equity 675,750 Total liabilities and equity $1,125,750 To prepare a master budget for January, February, and March of 2012, management gathers the following information. a. Simid Sports' single product is purchased for $20 per unit and resold for $55 per unit. The expected inventory level of 4,750 units on December 31, 2011, is more than management's desired level for 2012 which is 20% of the next month's expected sales (in units). Expected sales are: January, 6,750 units; February, 8,500 units; March, 11,500 units; and April, 10,000 units b. Cash sales and 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, $130,000 is collected in January and the remaining $390,000 is collected in February.

Explanation / Answer

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Working:

Master Budget Sl no Operation January February March Total i Budgeted Sales value 371250 467500 632500 1471250 Cost Budgeted Merchandise Purchases 74000 182000 224000 480000 Total Selling Expenses 78250 97500 130500 306250 Total General and administrative expenses 23954 24954 25256 74165 ii Total Cost 176204 304454 379756 860415 iii Profit i-ii 195046 163046 252744 610835

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