Near the end of 2019, the management of Dimsdale Sports Co., a merchandising company, prepared the following estimated balance
sheet for December 31, 2019.
DIMSDALE SPORTS COMPANY
Estimated Balance Sheet
December 31, 2019
Assets
Cash $ 36,000
Accounts receivable 520,000
Inventory 105,000
Total current assets $ 661,000
Equipment 564,000
Less: Accumulated depreciation 70,500
Equipment, net 493,500
Total assets $ 1,154,500
Liabilities and Equity
Accounts payable $ 355,000
Bank loan payable 11,000
Taxes payable (due 3/15/2020) 89,000
Total liabilities $ 455,000
Common stock 473,000
Retained earnings 226,500
Total stockholders’ equity 699,500
Total liabilities and equity $ 1,154,500
To prepare a master budget for January, February, and March of 2020, management gathers the following information.
a. The company’s 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, 2019, is more than management’s desired level, which is 20% of the next month’s expected sales (in units). Expected
sales are January, 7,250 units; February, 9,000 units; March, 10,750 units; and April, 9,500 units.
b. Cash sales and credit sales represent 20% and 80%, respectively, of total sales. Of the credit sales, 61% is collected in the first month
after the month of sale and 39% in the second month after the month of sale. For the December 31, 2019, accounts receivable
balance, $125,000 is collected in January 2020 and the remaining $395,000 is collected in February 2020.
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, 2019, accounts payable balance, $65,000 is paid in January 2020 and the remaining
$290,000 is paid in February 2020.
d. Sales commissions equal to 20% of sales are paid each month. Sales salaries (excluding commissions) are $78,000 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, 2019, balance sheet was purchased in January 2019. 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, $33,600; February, $93,600; and March, $24,000. 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 buy land at the end of March at a cost of $140,000, which will be paid with cash on the last day of the month.
h. 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 $26,000 at the end of each month.
i. The income tax rate for the company is 39%. 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 2020; include the following component budgets.
1.
2.
3.
4.
5.
6.
7.
8.
Required 1 Required 2
Complete this question by entering your answers in the tabs below.
Monthly sales budgets.
Required 1
Required 2
Required 3
Required 4
Required 5
Required 6
Calc
Required 6
Cash Bud
Required 7
Required 8
DIMSDALE SPORTS CO.
Sales Budget
For January, February, and March 2020
Budgeted
Unit Sales
Budgeted
Unit
Price
Budgeted
Total
Dollars
January 7,250 $ 55 398,750
February 9,000 55 495,000
March 10,750 55 591,250
Totals for the
quarter 27,000 $ 55.00 1,485,000
References
