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 1
Sales Budget
	Expected Units sold	Selling Price	Sales value
January	7000	$55	$385,000
Februry	9000	$55	$495,000
March	11000	$55	$605,000
Schedule of Expected Cash Collections
	January	Feb	March	Quarter	April
Total sales T	$385,000	$495,000	$605,000	1485000	550000
Credit sales C (75%*T)	$288,750	$371,250	$453,750	$1,113,750
Cash Sales (25% for cash) S	$96,250	$123,750	$151,250	$371,250
Collection from Accounts receivable	$125,000	$400,000		525000
January sales (288750*60% and 40%)		$173,250	$115,500	288750
Februry sales (371250*60%)			$222,750	222750
Total Collections	$510,000	$1,068,250	$943,250	$2,521,500
ans 2
Merchandise Purchases Budget
	January	Feb	March	Quarter	April
expected sales in units	7000	9000	11000	27000	10000
Add Desired Ending Inventory (20%*next month sales)	1800	2200	2000	2000
Total Needs	8800	11200	13000	29000
Less Beginning Inventory	5000	1800	2200	5000
Required Purcahses in units	3800	9400	10800	24000
Cost price per unit	30	30	30	30
Total required purchases	114000	282000	324000	720000
Schedule of Expected Cash Disbursements- Merchandise Purchases
(20% in next month and 80% second in next month)	January	Feb	March	Quarter
Payment to Accounts payable	$80,000	280000		$360,000
Jan Purchases (114000*20% and 80%)		$22,800	91200	$114,000
Feb purchases			$56,400	$56,400
Total Disbursements	$80,000	$302,800	$147,600	$530,400
ans 3	January	Feb	March	Quarter
Selling expenses bUdget
Sales comission (20%*T)	$77,000.0	$99,000.0	$121,000.0	$297,000.0
Sales salaries (60000/12)	5000	5000	5000	$15,000.0
Total selling expenses	$82,000.0	$104,000.0	$126,000.0	$312,000.0
ans 4	January	Feb	March	Quarter
General & administrative expensesbudget
General & administrative salaries (144000/12)	$12,000.0	$12,000.0	$12,000.0	$36,000.0
Maintainence expenses	2000	2000	2000	$6,000.0
Total General & administrative expenses	$14,000.0	$14,000.0	$14,000.0	$42,000.0
Dear student, I have done first four parts