Question

Near the end of 2011, the management of Simid Sports Co., a merchandising company, prepared the following estimated statement of financial position for December 31, 2011.

SIMID SPORTS COMPANY Estimated Statement of Financial position December 31, 2011
Assets
Cash				$	35,500
Accounts receivable					520,000
Inventory					157,500
Total current assets					713,000
Equipment	$	536,000
Less accumulated depreciation		67,000			469,000
Total assets				$	1,182,000
Liabilities and Equity
Accounts payable	$	375,000
Bank loan payable		16,000
Tax payable (due 3/15/2012)		89,000
Total liabilities				$	480,000
Share capital—ordinary		473,500
Retained earnings		228,500
Total stockholders’ equity					702,000
Total liabilities and equity				$	1,182,000

To prepare a master budget for January, February, and March of 2012, management gathers the following information.

a.	Simid Sports’ 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, 2011, is more than management’s desired level for 2012, which is 20% of the next month’s expected sales (in units). Expected sales are: January, 7,000 units; February, 8,750 units; March, 10,500 units; and April, 9,500 units.
b.	Cash sales and credit sales represent 25% and 75%, 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, 2011, accounts receivable balance, $125,000 is collected in January and the remaining $395,000 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, 2011, accounts payable balance, $75,000 is paid in January and the remaining $300,000 is paid in February.
d.	Sales commissions equal to 20% of sales are paid each month. Sales salaries (excluding commissions) are $90,000 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, 2011, statement of financial position was purchased in January 2011. It is being depreciated over eight years under the straight-line method with no residual value. The following amounts for new equipment purchases are planned in the coming quarter: January, $34,000; February, $95,000; and March, $28,500. This equipment will be depreciated under the straight-line method over eight years with no residual 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 $145,000, which will be paid with cash on the last day of the month.
h.	Simid 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 $32,740 in each month.
i.	The income tax rate for the company is 37%. Income tax on the first quarter’s income will not be paid
	Answer the following questions(5---8)
5.	Monthly capital expenditures budgets.    6.Monthly cash budgets.
	7. Budgeted income statement for the entire first quarter (not for each month).
8.	Budgeted statement of financial position as at March 31, 2012.

Answer 1