Near the end of 2017, the management of Dimsdale Sports Co., a merchandising com
ID: 2594526 • 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.
To prepare a master budget for January, February, and March of 2018, management gathers the following information.
The company’s single product is purchased for $30 per unit and resold for $54 per unit. The expected inventory level of 5,250 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, 7,500 units; February, 8,750 units; March, 10,500 units; and April, 10,500 units.
Cash sales and credit sales represent 20% and 80%, respectively, of total sales. Of the credit sales, 57% is collected in the first month after the month of sale and 43% in the second month after the month of sale. For the December 31, 2017, accounts receivable balance, $120,000 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, $75,000 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 $54,000 per year.
General and administrative salaries are $144,000 per year. Maintenance expense equals $2,100 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, $38,400; February, $91,200; and March, $26,400. 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 $155,000, 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 $9,000 at the end of each month.
The income tax rate for the company is 43%. Income taxes on the first quarter’s income will not be paid until April 15.
Calculate the budgeted cash receipts and cash payments. (Negative values should be indicated with minus sign. Round your final answers to the nearest whole dollar.)
Monthly cash budgets. (Negative balances and Loan repayment amounts (if any) should be indicated with minus sign. Round your final answers to the nearest whole dollar.)
DIMSDALE SPORTS COMPANYEstimated Balance Sheet
December 31, 2017 Assets Cash $ 36,500 Accounts receivable 520,000 Inventory 157,500 Total current assets $ 714,000 Equipment 564,000 Less: accumulated depreciation 70,500 Equipment, net 493,500 Total assets $ 1,207,500 Liabilities and Equity Accounts payable $ 355,000 Bank loan payable 15,000 Taxes payable (due 3/15/2018) 92,000 Total liabilities $ 462,000 Common stock 472,500 Retained earnings 273,000 Total stockholders’ equity 745,500 Total liabilities and equity $ 1,207,500
Explanation / Answer
Calculation of Cash receipts from customers:
January
February
March
April
Sales in units
7500
8750
10500
10500
Selling price per unit
$54
Total budgeted sales
405000
472500
567000
567000
Cash sales
20%
81000
94500
113400
113400
Sales on credit
80%
120000
400000
139320
162540
184680
215460
201000
679180
468180
------------------Collected in--------------
March 31
Total
January
February
March
Receivable
Accounts Receivable - January 1
$520,000
$120,000
$400,000
Credit sales from:
January
$0
February
0
March
0
Total collection of receivables
$120,000
$400,000
$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)
1750
2100
2100
Budgeted sales in units
7500
8750
10500
Total units required
Beginning inventory (units)
5250
1750
2100
Number of units to be purchased
4000
9100
10500
Cost per unit
30
30
30
Total cost of purchases
120000
273000
315000
----------------Paid in---------------
March 31
Total
January
February
March
Payable
Accounts Payable - January 1
$355,000
$75,000
$280,000
Merchandise purchases in:
January
120,000
$0
February
273000
0
March
157500
0
Total cash paid for merchandise
$75,000
$280,000
96000
$0
24000
54600
135000
304000
150600
DIMSDALE SPORTS CO.
Cash Budget
January, February, and March 2018
January
February
March
Cash receipts from customers
201000
679180
468180
Total cash available
Cash payments for:
Merchandise
135000
304000
150600
Purchase of land
155000
Purchases of equipment
38400
91200
26400
General & administrative salaries
12000
12000
12000
Maintenance expense
2100
2100
2100
Sales commissions
81000
94500
113400
Sales salaries
45000
45000
45000
Interest on bank loan
670
0
Taxes payable
0
0
0
Total cash payments
314170
NET
-113170
130380
-36320
Preliminary cash balance
$36,500
9000
139380
Additional loan (loan repayment)
67000
139380
103070
Ending cash balance
9000
139380
9000
Loan balance
January
February
March
Loan balance - Beginning of month
Additional loan (loan repayment)
Loan balance - End of month
Calculation of Cash receipts from customers:
January
February
March
April
Sales in units
7500
8750
10500
10500
Selling price per unit
$54
Total budgeted sales
405000
472500
567000
567000
Cash sales
20%
81000
94500
113400
113400
Sales on credit
80%
120000
400000
139320
162540
184680
215460
201000
679180
468180
------------------Collected in--------------
March 31
Total
January
February
March
Receivable
Accounts Receivable - January 1
$520,000
$120,000
$400,000
Credit sales from:
January
$0
February
0
March
0
Total collection of receivables
$120,000
$400,000
$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)
1750
2100
2100
Budgeted sales in units
7500
8750
10500
Total units required
Beginning inventory (units)
5250
1750
2100
Number of units to be purchased
4000
9100
10500
Cost per unit
30
30
30
Total cost of purchases
120000
273000
315000
----------------Paid in---------------
March 31
Total
January
February
March
Payable
Accounts Payable - January 1
$355,000
$75,000
$280,000
Merchandise purchases in:
January
120,000
$0
February
273000
0
March
157500
0
Total cash paid for merchandise
$75,000
$280,000
96000
$0
24000
54600
135000
304000
150600
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