Near the end of 2013, the management of Dimsdale Sports Co., a merchandising com

Question

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 $ 35,500 Accounts receivable 520,000 Inventory 150,000 Total current assets 705,500 Equipment $ 539,000 Less accumulated depreciation 67,375 Equipment, net 471,625 Total assets $ 1,177,125 Liabilities and Equity Accounts payable $ 360,000 Bank loan payable 15,000 Taxes payable (due 3/15/2014) 91,000 Total liabilities $ 466,000 Common stock 472,500 Retained earnings 238,625 Total stockholders’ equity 711,125 Total liabilities and equity $ 1,177,125 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 $30 per unit and resold for $53 per unit. The expected inventory level of 5,000 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, 7,000 units; February, 9,100 units; March, 11,000 units; and April, 11,000 units. b. Cash sales and credit sales represent 20% and 80%, respectively, of total sales. Of the credit sales, 63% is collected in the first month after the month of sale and 37% in the second month after the month of sale. For the December 31, 2013, accounts receivable balance, $120,000 is collected in January and the remaining $400,000 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 purchase. For the December 31, 2013, accounts payable balance, $85,000 is paid in January and the remaining $275,000 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, $35,000; February, $96,000; and March, $29,500. 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 $175,000, 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 $350 in each month. i. The income tax rate for the company is 37%. Income taxes on the first quarter’s income will not be paid until April 15.

DIMSDALE SPORTS CO CASH BUDGET JAN FEB MAR 2014 JAN FEB MAR BEGINNING CASH BALANCE TOTAL CASH AVAILABLE CASH DISBURSEMENTS INTEREST ON BANK LOAN PURCHASE OF EQUIPMENT TOTAL CASH DISBURSEMENT PRELIMINARY CASH BALANCE ENDING CASH BALANCE LOAN BALANCE LOAN BALANCE - BEGINNING OF THE MONTH ADDITIONAL LOAN (LOAN REPAYMENT) LOAN BALANCE - END OF MONTH

Explanation / Answer

Required Budgets are as prepared below:

Dimsdale Sports Co. Sales Budget For the quarter ended March 31 2014 Month Particulars January February March Total April Budgeted Unit sales 7,000 9,100 11,000 27,100 11,000 Sale Price 53 53 53 53 53 Budgeted sales 371,000 482,300 583,000 1,436,300 583,000 Credit Sales (80%) 296,800 385,840 466,400 1,149,040 466,400 Dimsdale Sports Co. Schedule of expected Cash collections For the quarter ended March 31 Month Particulars January February March Total Beginning Accounts Receivable 120,000 400,000 520000 Cash Sales 74200 96460 116600 287260 January Credit sales 186,984 109,816 296800 February Credit Sales 243,079 243079.2 March Credit sales 0 Total collections 194,200 683,444 469,495 1,347,139 Account receivable for February Sale 142,761 Account receivable for March Sale 466,400 Dimsdale Sports Co. Merchandise Purchase Budget For the quarter ended March 31 Month Particulars January February March Total April Budgeted Unit Sales 7,000 9,100 11,000 27,100 11,000 Add: Desired Ending merchandise inventory 1,820 2,200 2,200 2,200 Total needs 8,820 11,300 13,200 29,300 Less: beginning merchandise inventory 5,000 1,820 2,200 5,000 Required purchase 3,820 9,480 11,000 24,300 Unit Cost 30.0 30.0 30.0 30.0 Required dollar purchases $114,600 $284,400 $330,000 $729,000 Dimsdale Sports Co. Schedule of expected Cash payments For the quarter ended March 31 Month Particulars January February March Total Beginning Accounts Payable (a) $85,000 $275,000 $360,000 January Purchases (b) $22,920 $91,680 $114,600 February Purchases (c ) $56,880 $56,880 March Purchases (d) $0 Total payments (a+b+c+d) $85,000 $297,920 $148,560 $531,480 Accounts Payable for February purchase $227,520 Accounts Payable for March purchase $330,000 Dimsdale Sports Co. Commission For the quarter ended March 31 Month Particulars January February March Total Budgeted sales 371,000 482,300 583,000 1,436,300 Sales Commission (20% of sales) 74,200 96,460 116,600 287,260 Sales Salaries (72,000/12) 6,000 6,000 6,000 18,000 Dimsdale Sports Co. Administrative Exp For the quarter ended March 31 Month Particulars January February March Total General and administrative saleries (144,000/12) 12,000 12,000 12,000 36,000 Maintenance Expense 2,000 2,000 2,000 6,000 Cash Budget For the quarter ended March 31 Month Particulars January February March Total Beginning Cash balance 35,500 500 173,564 35,500 Add: Collection from customers $194,200 $683,444 $469,495 $1,347,139 Cash available for use 229,700.0 683,944.0 643,059.2 1,382,639.2 Less: cash Disbursements Merchandise purchase $85,000 $297,920 $148,560 $531,480 Sales commission $74,200 $96,460 $116,600 $287,260 Sales salaries $6,000 $6,000 $6,000 $18,000 General and administrative saleries (144,000/12) 12,000 12,000 12,000 36,000 Maintenance Expense 2,000 2,000 2,000 6,000 Equipment purchase 35,000 96,000 29,500 160,500 Land acquired 175,000 175,000 Taxes payable 91,000 91,000 Total disbusrement 214,200 510,380 580,660 1,305,240 Cash surplus/Deficit 15,500.0 173,564.0 62,399.2 77,399.2 Financing    Borrowing 0    Repayment -15,000 -15,000    Interest 0 Net cash from Financing -15,000 0 0 -15,000 Budgeted ending cash balance 500.0 173,564 62,399 62,399 Dimsdale Sports Co. Budgeted Income Statement For the quarter ended March 31 Particulars Amount ($) Amount ($) Sales 1,436,300 Less: Cost of goods sold (27,100*30) 813,000 Gross margin 623,300 Less: Selling and administrative exp Depreciation 20,245 Sales commission 287,260 Sales salaries 18,000 General and administrative saleries (144,000/12) 36,000 Maintenance Expense 6,000 367,505 Net operating Income 255,795 Taxes payable (37%) 94,644 Net Income 161,151 Dimsdale Sports Co. Budgeted balance Sheet Mar-31 Assets Cash 62,399 Accounts Receivable 609,161 Inventory (2,200*30) 66,000 Land 175,000 Property and equipment 699,500 Less: Accumulated Depreciation -87,620 Total assets 1,524,440 Liabilities and Stockholders' Equity Accounts Payable purchases 557,520 Income taxes payable 94,644 Common Stock 472,500 Retained earnings 399,776 Total liabilities and stockholders' equity 1,524,440 0 Equipment December 31, 2013 539,000 Useful Life 8 years Per year Depreciation 67,375 Monthly Depreciation 5,615 January February March Equipment purchased 35,000 96,000 29,500 Useful Life 8 8 8 Per year Depreciation 4,375 12,000 3,688 Monthly Depreciation 365 1,000 307 January February March Total Monthly Depreciation 5,979 6,979 7,286

Related Questions

Navigate

• Browse (All)
• Browse N
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.