Near the end of 2017, the management of Dimsdale Sports Co., a merchandising com
ID: 2551315 • Letter: N
Question
Near the end of 2017, the management of Dimsdale Sports Co., a merchandising company, prepared the following estimated balance sheet for December 31, 2017.
The company’s single product is purchased for $30 per unit and resold for $55 per unit. The expected inventory level of 5,000 units on December 31, 2017, is more than management’s desired level, which is 20% of the next month’s expected sales (in units). Expected sales are: January, 7,000 units; February, 9,000 units; March, 11,000 units; and April, 10,000 units.
Cash sales and credit sales represent 25% and 75%, respectively, of total sales. Of the credit sales, 60% is collected in the first month after the month of sale and 40% in the second month after the month of sale. For the December 31, 2017, accounts receivable balance, $125,000 is collected in January and the remaining $400,000 is collected in February.
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 purchase. For the December 31, 2017, accounts payable balance, $80,000 is paid in January and the remaining $280,000 is paid in February.
Sales commissions equal to 20% of sales are paid each month. Sales salaries (excluding commissions) are $60,000 per year.
General and administrative salaries are $144,000 per year. Maintenance expense equals $2,000 per month and is paid in cash.
Equipment reported in the December 31, 2017, balance sheet was purchased in January 2017. 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, $96,000; and March, $28,800. 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.
The company plans to buy land at the end of March at a cost of $150,000, which will be paid with cash on the last day of the month.
The company 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 $25,000 at the end of each month.
The income tax rate for the company is 40%. Income taxes on the first quarter’s income will not be paid until April 15.
Required:
Prepare a master budget for each of the first three months of 2018; include the following component budgets:
1. Monthly sales budgets.
2. Monthly merchandise purchases budgets.
3. Monthly selling expense budgets.
4. Monthly general and administrative expense budgets.
5. Monthly capital expenditures budgets.
6. Monthly cash budgets.
7. Budgeted income statement for the entire first quarter (not for each month).
8. Budgeted balance sheet as of March 31, 2018.
Estimated Balance Sheet
December 31, 2017 Assets Cash $ 36,000 Accounts receivable 525,000 Inventory 150,000 Total current assets $ 711,000 Equipment 540,000 Less: accumulated depreciation 67,500 Equipment, net 472,500 Total assets $ 1,183,500 Liabilities and Equity Accounts payable $ 360,000 Bank loan payable 15,000 Taxes payable (due 3/15/2018) 90,000 Total liabilities $ 465,000 Common stock 472,500 Retained earnings 246,000 Total stockholders’ equity 718,500 Total liabilities and equity $ 1,183,500
Explanation / Answer
Schedule of sales Budget Jan Feb mar Quarter Sales in units 7000 9000 11000 27000 price per unit 55 55 55 55 Total sales 385000 495000 605000 1485000 Schedule of Expected cash Collections Jan Feb mar Quarter Sales 385000 495000 605000 1485000 Cash Sales 96250 123750 151250 371250 Credit sales December 125000 400000 525000 Jan 173250 115500 288750 Feb 222750 222750 Total collections 221250 697000 489500 1407750 2 Merchandise purchase BUDGET Jan Feb mar Quarter APRIl Units 7000 9000 11000 10000 Budgeted cost of goods sold 210000 270000 330000 816750 300000 Add: desired ending inventory 54000 66000 60000 60000 Total Needs 264000 336000 390000 990000 Less: beginning inventory -150000 -54000 -66000 -66000 required purchases 114000 282000 324000 720000 Schedule of cash disbursements- Merchandise purchases Jan Feb mar Quarter December 80000 280000 360000 january 22800 91200 114000 febraury 56400 56400 Total Disbursements 80000 302800 147600 530400 Schedule of selling expenses budget Jan Feb mar Quarter Sales Commission 77000 99000 121000 297000 Sale salaries 5000 5000 5000 15000 Total sales expenses 82000 104000 126000 312000 january Febraury march Total Equipment-beginning of january 5400000 5436000 5532000 Add: purchases 36000 96000 28800 Ending balance 5436000 5532000 5560800 Depreciation Expense 6000 7000 7300 20300 Schedule of administrative expenses Jan Feb mar Quarter Depreciation Expense 6000 7000 7300 20300 General and administrative salaries 12000 12000 12000 36000 maintenance expenses 2000 2000 2000 6000 Total administrative expenses 20000 21000 21300 62300 Capital Expenditure Budget Jan Feb mar Quarter Equipment purchased 36000 96000 28800 160800 Land 0 0 150000 150000 Total 36000 96000 178800 310800 3 CASH BUDGET jan feb march Quarter Beginning cash Blance 36000 30100 210300 36000 Add: Collections 221250 697000 489500 1407750 Total Cash Available 257250 727100 699800 1443750 Less: Cash Disbursements For Inventory 80000 302800 147600 530400 For Expenses 96000 118000 140000 354000 For Equipment 36000 96000 28800 160800 Land 0 0 150000 150000 Total Cash Disbursements 212000 516800 466400 1195200 Excess / Deficiency of cash 45250 210300 233400 248550 Financing: Borrowings 0 0 0 repayments 15000 0 15000 Interest 150 0 0 150 Total Financing -15150 0 0 -15150 Ending cash Balance 30100 210300 233400 233400
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.