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	$	35,500
Accounts receivable		520,000
Inventory		157,500
Total current assets				$	713,000
Equipment		576,000
Less: accumulated depreciation		72,000
Equipment, net					504,000
Total assets				$	1,217,000
Liabilities and Equity
Accounts payable	$	370,000
Bank loan payable		14,000
Taxes payable (due 3/15/2018)		89,000
Total liabilities				$	473,000
Common stock		474,000
Retained earnings		270,000
Total stockholders’ equity					744,000
Total liabilities and equity				$	1,217,000

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

1. The company’s single product is purchased for $30 per unit and resold for $57 per unit. The expected inventory level of 5,250 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, 11,500 units; and April, 10,500 units.
2. Cash sales and credit sales represent 20% and 80%, respectively, of total sales. Of the credit sales, 59% is collected in the first month after the month of sale and 41% 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 $395,000 is collected in February.
3. 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, $60,000 is paid in January and the remaining $310,000 is paid in February.
4. Sales commissions equal to 20% of sales are paid each month. Sales salaries (excluding commissions) are $72,000 per year.
5. General and administrative salaries are $144,000 per year. Maintenance expense equals $2,100 per month and is paid in cash.
6. 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, $33,600; February, $96,000; 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.
7. The company plans to buy 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.
8. 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 $28,000 at the end of each month.
1. The income tax rate for the company is 41%. 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:

8. Budgeted balance sheet as of March 31, 2018.

Answer 1

	DIMSDALE SPORTS CO.
	Schedule of Sales Budget
Month	January	Febuary	March	Quarter
Sales	7000	9000	11500	27500
Unit selling price	$                     57.00	$                      57.00	$                57.00	$                57.00
Sales Price	$         3,99,000.00	$          5,13,000.00	$    6,55,500.00	$ 15,67,500.00
	DIMSDALE SPORTS CO.
	Schedule of expected cash collection
Month	January	Febuary	March	Quarter
Accounts Receivable	$         1,25,000.00	$          3,95,000.00		$    5,20,000.00
Jan Sales=($399000*20%)in Jan,($399000*80%)*59% in February,($399000*80%)*41% in March	$             79,800.00	$          1,88,328.00	$    1,30,872.00	$    3,99,000.00
February Sales=($513000*20%) in February,($513000*80%)*59% in March		$          1,02,600.00	$    2,42,136.00	$    3,44,736.00
March Sales=($655000*20%) in March			$    1,31,100.00	$    1,31,100.00
Total Cash collection	$         2,04,800.00	$          6,85,928.00	$    5,04,108.00	$ 13,94,836.00
	DIMSDALE SPORTS CO.
	Raw Material Purchase Budget
Month	Janury	February	March	Quarter
Sales (Units)	7000	9000	11500	27500
Ending Inventory=(9000*20%) in January,(11500*20%) in February,(10500*20%) in March	1800	2300	2100	2100
Total Needs	8800	11300	13600	29600
Less: Beginning Inventory=5250 in January(given),Closing Inventory of Jan is the Beginning Inventory of February,closing Inventory of February is the beginning inventory of March	5250	1800	2300	5250
Purchases	3550	9500	11300	24350
Purchase price per unit	$                     30.00	$                      30.00	$                30.00	$                30.00
Total Purchase Price	$         1,06,500.00	$          2,85,000.00	$    3,39,000.00	$    7,30,500.00
DIMSDALE SPORTS CO.
Budgeted Cash disbursement of Mercendise Purchase
Months	January	February	March	Quarter
Accounts Payable	$             60,000.00	$          3,10,000.00		$    3,70,000.00
($106500*20%) in February,($106500*80%) in March		$              21,300.00	$        85,200.00	$    1,06,500.00
($285000*20%) in March			$        57,000.00	$        57,000.00
Total Cash Payments	$             60,000.00	$          3,31,300.00	$    1,42,200.00	$    5,33,500.00
DIMSDALE SPORTS CO.
Budget for Total cash disbursement for Selling Expenses Budget
Months	January	February	March	Quarter
Sales Salaries=($72000/12)	$               6,000.00	$                6,000.00	$          6,000.00	$        18,000.00
Sales Commission=(20%of Sales)	$             79,800.00	$          1,02,600.00	$    1,31,100.00	$    3,13,500.00
Total Selling Expenses	$             85,800.00	$          1,08,600.00	$    1,37,100.00	$    3,31,500.00
DIMSDALE SPORTS CO.
Budget for Total cash disbursement for Administrative Exp Budget
Month	January	February	March	Quarter
General and Administerative Salaries($144000/12)	$             12,000.00	$              12,000.00	$        12,000.00	$        36,000.00
Maintenance Expenses=	$               2,100.00	$                2,100.00	$          2,100.00	$          6,300.00
Total Administrative Expenses	$             14,100.00	$              14,100.00	$        14,100.00	$        42,300.00
	DIMSDALE SPORTS CO.
	For the three months ending March 31st
Months	January	February	March	Quarter
Cash Balance	$             35,500.00	$              32,660.00	$    1,68,588.00	$        35,500.00
Add: Collections from customer	$         2,04,800.00	$          6,85,928.00	$    5,04,108.00	$ 13,94,836.00
Total Cash available	$         2,40,300.00	$          7,18,588.00	$    6,72,696.00	$ 14,30,336.00
Less: Disbursement
Merchandise Purchase	$             60,000.00	$          3,31,300.00	$    1,42,200.00	$    5,33,500.00
Sales Salaries	$               6,000.00	$                6,000.00	$          6,000.00	$        18,000.00
Sales Commission	$             79,800.00	$          1,02,600.00	$    1,31,100.00	$    3,13,500.00
General & Administrative Exp	$             12,000.00	$              12,000.00	$        12,000.00	$        36,000.00
Maintenance Expenses	$               2,100.00	$                2,100.00	$          2,100.00	$          6,300.00
Equipment Purchase	$             33,600.00	$              96,000.00	$        24,000.00	$    1,53,600.00
Land Purchase			$    1,45,000.00	$    1,45,000.00
Total Disbursemnts	$         1,93,500.00	$          5,50,000.00	$    4,62,400.00	$ 12,05,900.00
Excess/Deficiency of receipts over	$             46,800.00	$          1,68,588.00	$    2,10,296.00	$    2,24,436.00
disbursements
Financing:
Borrowings				$                       -
Repayments	$          (14,000.00)		$                       -	$      (14,000.00)
Interest=(15000*1%)	$                (140.00)			$            (140.00)
Total Financing	$          (14,140.00)			$      (14,140.00)
Cash Balance ,ending	$             32,660.00	$          1,68,588.00	$    2,10,296.00	$    2,10,296.00