Question

Near the end of 2017, the management of Dimsdale Sports Co., a merchandising company, prepared the following estimated balance sheet for December 31, 2017.

DIMSDALE SPORTS COMPANY Estimated Balance Sheet December 31, 2017
Assets
Cash	$	36,000
Accounts receivable		525,000
Inventory		150,000
Total current assets				$	711,000
Equipment		540,000
Less: accumulated depreciation		67,500
Equipment, net					472,500
Total assets				$	1,183,500
Liabilities and Equity
Accounts payable	$	360,000
Bank loan payable		15,000
Taxes payable (due 3/15/2018)		90,000
Total liabilities				$	465,000
Common stock		472,500
Retained earnings		246,000
Total stockholders’ equity					718,500
Total liabilities and equity				$	1,183,500

To prepare a master budget for January, February, and March of 2018, management gathers the following information.

The company’s single product is purchased for $30 per unit and resold for $55 per unit. The expected inventory level of 5,000 units on December 31, 2017, is more than management’s desired level, which is 20% of the next month’s expected sales (in units). Expected sales are: January, 7,000 units; February, 9,000 units; March, 11,000 units; and April, 10,000 units.

Cash sales and credit sales represent 25% and 75%, respectively, of total sales. Of the credit sales, 60% is collected in the first month after the month of sale and 40% in the second month after the month of sale. For the December 31, 2017, accounts receivable balance, $125,000 is collected in January and the remaining $400,000 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, 2017, accounts payable balance, $80,000 is paid in January and the remaining $280,000 is paid in February.

Sales commissions equal to 20% of sales are paid each month. Sales salaries (excluding commissions) are $60,000 per year.

General and administrative salaries are $144,000 per year. Maintenance expense equals $2,000 per month and is paid in cash.

Equipment reported in the December 31, 2017, balance sheet was purchased in January 2017. 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, $96,000; and March, $28,800. 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 buy 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.

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 $25,000 at the end of each month.

The income tax rate for the company is 40%. 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 2018; include the following component budgets:

1. Monthly sales budgets.
2. Monthly merchandise purchases budgets.
3. Monthly selling expense budgets.
4. Monthly general and administrative expense budgets.
5. Monthly capital expenditures budgets.
6. Monthly cash budgets.
7. Budgeted income statement for the entire first quarter (not for each month).
8. Budgeted balance sheet as of March 31, 2018.

Answer 1

ans a
Sales Budget
January february March
	Budgeted Unit Sales	Budgeted Unit Price	Budgeted Total Dollars
January	7,000	$55.00	385,000
Feb	9,000	55	495,000
Mar	11,000	55	605,000
Totals for the quarter	27000	55	1,485,000
Calculation of Cash receipts from customers:
		January	February	March	Total
Total budgeted sales		$385,000	$495,000	$605,000
Cash sales	25%	96,250	123,750	151,250	371,250
Sales on credit	75%	$288,750	$371,250	$453,750
Total cash receipts from customers
		January	February	March	Total
Current month's cash sales		$96,250	$123,750	$151,250	371,250
From Jan 1 accounts recivable		$125,000	$400,000		525,000
From Jan sales			$173,250	$115,500	288,750
From Feb sales				$222,750	222,750
From March sales
Total collection		$221,250	$697,000	$489,500	$1,407,750
ans b
Mercandise Purchase Budget
January february March
	January	February	March	Total	April
Next month's budgeted sales (units)	9,000	11,000	10,000		500
Ratio of inventory to future sales	20%	20%	20%		20%
Budgeted ending inventory (units)	1,800	2,200	2,000	2,000
Budgeted units sales for month	7,000	9,000	11,000	27,000
Required units of available production	8,800	11,200	13,000	29,000
Beginning inventory (units)	5,000	1,800	2,200	5,000
Units to be purchased	3,800	9,400	10,800	24,000
Rate per unit	$30	$30	$30	$30
Total Purchases	$114,000	$282,000	$324,000	$720,000
ans c
Monthly Selling & expenses Budget
	January	February	March	Total
Sales commission (20%*sales value)	77000	99000	121000	297000
Sales salaries	$60,000	$60,000	$60,000	$180,000
Total selling & expenses budget	137000	159000	181000	477000
ans d
General and administrative Budget
	January	February	March	Total
Salaries	$12,000	$12,000	$12,000	$36,000
Maintenance expenses	$2,000	$2,000	$2,000	$6,000
Total nGeneral and administrative Budget	$14,000	$14,000	$14,000	$42,000
ans e
Monthly Capital Expenditure Budget
	January	February	March	Total
Purchase of equipment	$36,000	$96,000	$28,800	$160,800
			$150,000	$150,000
Total Capital expenditure Budget	$36,000	$96,000	$178,800	$310,800
Dear student I have done the first five sub parts