[The following information applies to the questions displayed below.] Near the e
ID: 2497964 • Letter: #
Question
[The following information applies to the questions displayed below.]
Near the end of 2013, the management of Dimsdale Sports Co., a merchandising company, prepared the following estimated balance sheet for December 31, 2013.
DIMSDALE SPORTS COMPANY
Estimated Balance Sheet December 31, 2013
Assets
Cash
$ 37,000
Accounts receivable
520,000
Inventory
105,000
Total current assets Equipment
$ 536,000
662,000
Less accumulated depreciation
67,000
Equipment, net
469,000
Total assets
$ 1,131,000
Liabilities and Equity Accounts payable
$ 345,000
Bank loan payable
15,000
Taxes payable (due 3/15/2014)
90,000
Total liabilities Common stock
474,500
$ 450,000
Retained earnings
206,500
Total stockholders’ equity
681,000
Total liabilities and equity
$ 1,131,000
To prepare a master budget for January, February, and March of 2014, management gathers the following information.
a. Dimsdale Sports’ single product is purchased for $20 per unit and resold for $53 per unit. The expected inventory level of 5,250 units on December 31, 2013, is more than management’s desired level for 2014, which is 20% of the next month’s expected sales (in units). Expected sales are: January, 7,500 units; February, 8,900 units; March, 11,500 units; and April, 10,000 units.
b. Cash sales and credit sales represent 30% and 70%, respectively, of total sales. Of the credit sales, 61% is collected in the rst month after the month of sale and 39% in the second month after the month of sale. For the December 31, 2013, accounts receivable balance, $130,000 is collected in January and the remaining $390,000 is collected in February.
c. Merchandise purchases are paid for as follows: 20% in the rst month after the month of purchase and 80% in the second month after the month of purchase. For the December 31, 2013, accounts payable balance, $80,000 is paid in January and the remaining $265,000 is paid in February.
d. Sales commissions equal to 20% of sales are paid each month. Sales salaries (excluding commissions) are
$72,000 per year.
e. General and administrative salaries are $144,000 per year. Maintenance expense equals $2,000 per month and is paid in cash.
f. Equipment reported in the December 31, 2013, balance sheet was purchased in January 2013. 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, $36,000; February, $97,000; 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 depreciation is taken for the month in which equipment is purchased.
g. The company plans to acquire land at the end of March at a cost of $155,000, which will be paid with cash on the last day of the month.
h. Dimsdale 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 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 $55,600 in each month.
i. The income tax rate for the company is 39%. Income taxes on the rst quarter’s income will not be paid until April 15.
Required:
Prepare a master budget for each of the rst three months of 2014; include the following component budgets:
6.
1. Monthly sales budgets.
DIMSDALE SPORTS CO.
Sales Budget
For January, February, and March, 2014
Budgeted Unit Sales
Budgeted Unit Price
Budgeted Total Dollars
January
February
March
Totals for the quarter
7.
Monthly merchandise purchases budgets.
DIMSDALE SPORTS CO.
Merchandise Purchases Budget
January, February, and March 2014
January
February
March
Next month's budgeted sales (units)
8,900
11,500
10,000
Ratio of inventory to future sales
20%
20%
20%
Required units of available merchandise
Units to be purchased
.
8.
Monthly selling expense budgets.
DIMSDALE SPORTS COMPANY
Selling Expense Budget
January, February, and March 2014
January
February
March
Budgeted sales
Sales commissions
9
Monthly general and administrative expense budgets.
January
February
March
Equipment - beginning of month
$ 536,000
Equipment purchases
Equipment - end of month
DIMSDALE SPORTS CO.
General and Administrative Expense Budget
January, February, and March 2014
January
February
March
10.
value:
2.30 points
Monthly capital expenditures budgets.
DIMSDALE SPORTS COMPANY
Capital Expenditures Budget
January, February, and March 2014
January
February
March
Total
11.
value:
2.30 points
Required information
Monthly cash budgets.
Calculation of Cash receipts from customers:
January
February
March
Sales in units
Selling price per unit
Total budgeted sales
Cash sales
30%
Sales on credit
70%
------------------Collected in--------------
March 31
Total
January
February
March
Receivable
Accounts Receivable - January 1
$ 520,000
$ 130,000
$ 390,000
Credit sales from:
January
0
February
0
March
0
Total collection of receivables
$ 130,000
$ 390,000
$ 0
$ 0
Total cash receipts from customers
January
February
March
Collections of receivables
Calculation of payments for merchandise:
January
February
March
Desired ending inventory (units)
Budgeted sales in units
Total units required
Beginning inventory (units)
Number of units to be purchased
Cost per unit
Total cost of purchases
----------------Paid in---------------
March 31
Total
January
February
March
Payable
Accounts Payable - January 1
$ 345,000
$ 80,000
$ 265,000
Merchandise purchases in:
January
0
February
0
March
0
Total cash paid for merchandise
$ 80,000
$ 265,000
$ 0
$ 0
DIMSDALE SPORTS CO.
Cash Budget
January, February, and March 2014
January
February
March
Beginning cash balance
Total cash available
Cash disbursements:
Total cash disbursements
0
0
0
Preliminary cash balance
Ending cash balance
Loan balance
January
February
March
Loan balance - Beginning of month
Additional loan (loan repayment)
Loan balance - End of month
12.
value:
Required information
Budgeted income statement for the entire first quarter (not for each month).
DIMSDALE SPORTS CO.
Budgeted Income Statement
For Three Months Ended March 31, 2014
0
0
$ 0
13.
value:
Budgeted balance sheet as of March 31, 2014.
DIMSDALE SPORTS CO.
Budgeted Balance Sheet
March 31, 2014
Assets
Liabilities and Equity
Liabilities
Bank loan payable
Stockholders' Equity
Assets
Cash
$ 37,000
Accounts receivable
520,000
Inventory
105,000
Total current assets Equipment
$ 536,000
662,000
Less accumulated depreciation
67,000
Equipment, net
469,000
Total assets
$ 1,131,000
Liabilities and Equity Accounts payable
$ 345,000
Bank loan payable
15,000
Taxes payable (due 3/15/2014)
90,000
Total liabilities Common stock
474,500
$ 450,000
Retained earnings
206,500
Total stockholders’ equity
681,000
Total liabilities and equity
$ 1,131,000
Explanation / Answer
Dimsdale Sports Company Sales Budget For January,February, March, 2014 Budgeted Unit Sales Budgeted Unit Price Budgeted Total Dollars January 7500 53 397500 February 8900 53 471700 March 11500 53 609500 Totals for the quarter 27900 53 1478700 Dimsdale Sports Company Merchandise Purchase Budget For January,February, March, 2014 January February March Next Month's Budgeted Sales 8900 11500 10000 Ratio of Inventory to Future Sales 20% 20% 20% Closing Inventory 1780 2300 2000 Current Month's Sales Units 7500 8900 11500 Required Units of available Merchandise 9280 11200 13500 Opening Inventory 5250 1780 2300 Units to be Purchased 4030 9420 11200 Cost per Unit $20 $20 $20 Total Purchase Cost $80,600 $188,400 $224,000 Dimsdale Sports Company Selling Expense Budge For January,February, March, 2014 January February March Budgeted Sales 397500 471700 609500 Sales Commission in Percentage of Sales 20% 20% 20% Sales Commissions 79500 94340 121900 Sales Salaries 6000 6000 6000 Total Selling expense 85500 100340 127900 Monthly general and administrative expense budget January February March Equipment-Beginning of the Month $536,000 $572,000 $669,000 Equipment Purchases $36,000 $97,000 $30,000 Equipment- End of the Month $572,000 $669,000 $699,000 Depreciation for the Month $5,958 $6,969 $7,281 Dimsdale Sports Company General and Administrative expense Budget For January,February, March, 2014 January February March Depreciation for the Month $5,958 $6,969 $7,281 General and administrative Salaries $12,000 $12,000 $12,000 Maintenance Expenses $2,000 $2,000 $2,000 Total General and administrative expense $19,958 $20,969 $21,281 Dimsdale Sports Company Capital Expenditure Budget For January,February, March, 2014 January February March Equipment Purchase $36,000 $97,000 $30,000 Land Purchase 0 0 $155,000 Total $36,000 $97,000 $185,000 Calculation of Cash Receipts from Customers January February March Sales in Units 7500 8900 11500 Selling Price per Unit $53 $53 $53 Total Budgeted Sales $397,500 $471,700 $609,500 Cash Sales 30% $119,250 $141,510 $182,850 Credit Sales 70% $278,250 $330,190 $426,650 Collected in Mar-31 January February March Receivable Accounts Receivable-January 1 $520,000 $130,000 $390,000 0 Credit Sales From: January 0 $169,732.50 $108,517.50 February 0 0 $201,416 $128,774 March 0 0 0 $426,650 Total Collection of Receivables $130,000 $390,000 0 0 Total Cash Receipts from Customers January February March Collection of Sales $119,250 $311,242.50 $492,783.40 Collection of receivables $130,000 $390,000 $0 Total Cash receipts from Customers $249,250 $701,243 $492,783 Calculation of Payments for Merchandise January February March Desired Ending Inventory(Units) 1780 2300 2000 Budgeted Sales in Units 7500 8900 11500 Total Units Required 9280 11200 13500 Beginning Inventory (Units) 5250 1780 2300 Number of Units to be Purchased 4030 9420 11200 Cost Per Unit $20 $20 $20 Total Cost of Purchases $80,600 $188,400 $224,000 Paid in Mar-31 Total January February March Payable Accounts Payable-January 1 $345,000 $80,000 $265,000 Merchandise Purchases in January $16,120 $64,480 February $37,680 $150,720 March $224,000 Total Cash Paid for Merchandise $80,000 $281,120 $102,160 Dimsdale Sports Company Cash Budget For January,February, March, 2014 January February March Beginning Cash Balance $37,000 $55,600 $264,383 Cash Receipt from Customers $249,250 $701,243 $492,783 Total Cash available $286,250 $756,843 $757,166 Cash Disbursements: Purchase of Merchandise $80,000 $281,120 $102,160 Sales Commission $79,500 $94,340 $121,900 Sales Salaries $6,000 $6,000 $6,000 Equipment Purchase $36,000 $97,000 $30,000 Land Purchase $0 $0 $155,000 General and Administrative expense $12,000 $12,000 $12,000 Maintenance Expense $2,000 $2,000 $2,000 Interest on Loan $150 $0 $0 Income tax Payable $0 $0 $90,000 Total Cash Disbursement $215,650 $492,460 $519,060 Preliminary Cash balance $70,600 $264,383 $238,106 Loan Repayment ($15,000) $0 $0 Ending Cash Balance $55,600 $264,383 $238,106 Loan Balance January February March Loan Balance- Beginning of Month $15,000 $0 $0 Additional Loan(Loan Repayment) ($15,000) $0 Loan Balance-End of Month $0 $0 $0 Dimsdale Sports Company Budgeted Income Statement For Three Months ended March 31, 2014 Amount Sales $1,478,700 Less: Cost of Sales Opening Invenotry $105,000 Purchases $493,000 Closing Inventory ($40,000) $558,000 Gross Profit $920,700 General and Administrative Expense $62,208 Selling Expenses $313,740 Earnings before Interest and Tax $544,752 Interest $150 Earnings before Tax $544,602 Tax $212,395 Earnings After Tax $332,207 Dimsdale Sports Company Budgeted Balance Sheet 31-Mar-14 Assets Amount Amount Cash $238,106 Accounts Receivable $555,424 Inventory $40,000 Total Current Assets $833,530 Equipment $699,000 Less: Accumulated Depreciation $87,208 $611,792 Land $155,000 Total Fixed Assets $766,792 Total Assets $1,600,322 Liabilities and Equity Accounts Payable $374,720 Taxes Payable $212,395 Total Liabilities $587,115 Common Stock $474,500 Retained Earnings $538,707 Total Stockholders' Equity $1,013,207 Total Liabilities and Equity $1,600,322
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