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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 $ 36,500 Accounts receivable 520,000 Inventory 105,000 Total current assets 661,500 Equipment $ 545,000 Less accumulated depreciation 68,125 Equipment, net 476,875 Total assets $ 1,138,375
Liabilities and Equity Accounts payable $ 370,000 Bank loan payable 14,000
Taxes payable (due 3/15/2014) 90,000
Total liabilities $ 474,000 Common stock 471,000 Retained earnings 193,375 Total stockholders’ equity 664,375 Total liabilities and equity $ 1,138,375
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 $20 per unit and resold for $53 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, 7,250 units; February, 9,250 units; March, 10,500 units; and April, 10,000 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, $130,000 is collected in January and the remaining $390,000 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, $75,000 is paid in January and the remaining $295,000 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 $132,000 per year. Maintenance expense equals $2,100 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, $36,000; February, $95,000; 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.
g. The company plans to acquire 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.
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 $22,260 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.
Required:
Aja JacksonBMAL 530: 2014 Summer B 2
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Prepare a master budget for each of the first three months of 2014; include the following component budgets:
rev: 04_30_2014_QC_49073
1. Monthly sales budgets.
DIMSDALE SPORTS CO.
Sales Budget
For January, February, and March, 2014
Budgeted
Unit Sales
Budgeted
Unit Price
Budgeted
Total Dollars
January
February
March
Totals for the quarter
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2. Monthly merchandise purchases budgets.
DIMSDALE SPORTS CO.
Merchandise Purchases Budget
January, February, and March 2014
January February March
Next month's budgeted sales (units) 9,250 10,500 10,000
Ratio of inventory to future sales 20% 20% 20%
Required units of available merchandise
Units to be purchased
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3. Monthly selling expense budgets.
DIMSDALE SPORTS COMPANY
Selling Expense Budget
January, February, and March 2014
January February March
Budgeted sales
Sales commissions
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4. Monthly general and administrative expense budgets.
$
January February March
Equipment - beginning of month 545,000
Equipment purchases
Equipment - end of month
DIMSDALE SPORTS CO.
General and Administrative Expense Budget
January, February, and March 2014
January February March
rev: 04_30_2014_QC_49073
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5. Monthly capital expenditures budgets.
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DIMSDALE SPORTS COMPANY
Capital Expenditures Budget
January, February, and March 2014
January February March
Total
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6. Monthly cash budgets.
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DIMSDALE SPORTS CO.
Cash Budget
January, February, and March 2014
January February March
Beginning cash balance
Total cash available
Cash disbursements:
Total cash disbursements
Preliminary cash balance
Ending cash balance
Loan balance
January February March
Loan balance - Beginning of month
Additional loan (loan repayment)
Loan balance - End of month
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$ $ $
$
$ $ $
$
Calculation of Cash receipts from customers:
January February March
Sales in units
Selling price per unit
Total budgeted sales
Cash sales 20%
Sales on credit 80%
------------------Collected in-------------- March 31
Total January February March Receivable
Accounts Receivable - January 1
520,000 130,000 390,000
Credit sales from:
January
February 0
March 0
Total collection of receivables 130,000
Total cash receipts from customers
January February March
Collections of receivables
Calculation of payments for merchandise:
January February March
Desired ending inventory (units)
Budgeted sales in units
Total units required
Beginning inventory (units)
Number of units to be purchased
Cost per unit
Total cost of purchases
----------------Paid in--------------- March 31
Total January February March Payable
Accounts Payable - January 1 370,000 75,000 295,000
Merchandise purchases in:
January
February
March
Total cash paid for merchandise 75,000
rev: 01_20_2014_QC_43790
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7. Budgeted income statement for the entire first quarter (not for each month).
DIMSDALE SPORTS CO.
Budgeted Income Statement
For Three Months Ended March 31, 2014
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8. Budgeted balance sheet as of March 31, 2014.
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DIMSDALE SPORTS CO.
Budgeted Balance Sheet
March 31, 2014
Assets
Liabilities and Equity
Liabilities
Bank loan payable
Stockholders' Equity
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