Near the end of 2013, the management of Dimsdale Sports Co., a merchandising com
ID: 2655324 • Letter: N
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.
To prepare a master budget for January, February, and March of 2014, management gathers the following information.
Dimsdale Sports’ single product is purchased for $20 per unit and resold for $55 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, 6,500 units; February, 9,100 units; March, 11,250 units; and April, 9,500 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, 2013, accounts receivable balance, $125,000 is collected in January and the remaining $395,000 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, 2013, accounts payable balance, $80,000 is paid in January and the remaining $290,000 is paid in February.
Sales commissions equal to 20% of sales are paid each month. Sales salaries (excluding commissions) are $90,000 per year.
General and administrative salaries are $156,000 per year. Maintenance expense equals $2,000 per month and is paid in cash.
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, $97,000; and March, $29,000. 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.
The company plans to acquire 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.
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 $8,350 in 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.
Prepare a master budget for each of the first three months of 2014; include the following component budgets:
(PLEASE INCLUDE ALL PERTINENT INFORMATION FOR INFO LISTED BELOW)
Budgeted balance sheet as of March 31, 2014.
DIMSDALE SPORTS COMPANYEstimated Balance Sheet
December 31, 2013 Assets Cash $ 36,000 Accounts receivable 520,000 Inventory 105,000 Total current assets 661,000 Equipment $ 539,000 Less accumulated depreciation 67,375 Equipment, net 471,625 Total assets $ 1,132,625 Liabilities and Equity Accounts payable $ 370,000 Bank loan payable 15,000 Taxes payable (due 3/15/2014) 89,000 Total liabilities $ 474,000 Common stock 473,000 Retained earnings 185,625 Total stockholders’ equity 658,625 Total liabilities and equity $ 1,132,625
Explanation / Answer
Required: Master Budget for the First Quarter - January to March 2014 (Values in $) Jan Feb Mar Total Sales 3,57,500 5,00,500 6,18,750 14,76,750 Purchases 61,400 1,90,600 2,18,000 4,70,000 Sales Commission 71,500 1,00,100 1,23,750 2,95,350 Sales Salary 7,500 7,500 7,500 22,500 General & Admin Expenses 13,000 13,000 13,000 39,000 Maintenance Expenses 2,000 2,000 2,000 6,000 Depreciation 5,980 6,990 7,292 20,262 Interest Cost 730 730 730 2,190 Income before Taxes 1,95,390 1,79,580 2,46,478 6,21,448 Taxation 84,018 77,219 1,05,986 2,67,223 Retained Earnings 1,11,372 1,02,361 1,40,492 3,54,225 Mar-14 Workings : Opening Inventory 5,250 1,820 2,250 Opening Receivables 5,20,000 Purchases 3,070 9,530 10,900 Sales 11,81,400 Sales 6,500 9,100 11,250 Collections 5,14,228 Closing Inventory 1,820 2,250 1,900 Closing Receivables 11,87,172 Depreciation Opening Payables 3,70,000 On Opening Assets 5,615 5,615 5,615 Purchases 4,70,000 On additions 365 1,375 1,677 Payments 99,520 Closing Payables 7,40,480 Opening Cash 36,000 23,500 1,59,740 Additions 1,96,500 6,58,120 4,74,958 Utilisation 2,09,000 5,21,880 5,01,490 Closing Cash 23,500 1,59,740 1,33,208 Budgeted balance sheet as of March 31, 2014. Assets Cash $ 1,33,208 Accounts receivable 11,87,172 Inventory 38,000 Total current assets 13,58,380 Equipment $ 7,00,000 Land 1,50,000 Less accumulated depreciation 87,637 Land and Equipment, net 7,62,363 Total assets $ 21,20,743 Liabilities and Equity Accounts payable $ 7,40,480 Bank loan payable 1,00,190 Assumed balancing figure ; interest considered on 73000 additional loan taken Taxes payable (due 4/15/2014) 2,67,223 Total liabilities $ 11,07,893 Common stock 4,73,000 Retained earnings 5,39,850 Total stockholders’ equity 10,12,850 Total liabilities and equity $ 21,20,743
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