Question

Adia Davis

Principles of Accounting 2: Summer 2018 - Accounting 206

Master Budget Project

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[The following information applies to the questions displayed below.]

Near the end of 2015, the management of Dimsdale Sports Co., a merchandising company, prepared the following estimated balance sheet for December 31, 2015.

  

DIMSDALE SPORTS COMPANY Estimated Balance Sheet December 31, 2015
Assets
Cash	$	35,000
Accounts receivable		520,000
Inventory		95,000
Total current assets				$	650,000
Equipment	$	576,000
Less accumulated depreciation		72,000
Equipment, net					504,000
Total assets				$	1,154,000
Liabilities and Equity
Accounts payable	$	375,000
Bank loan payable		15,000
Taxes payable (due 3/15/2016)		91,000
Total liabilities				$	481,000
Common stock		473,500
Retained earnings		199,500
Total stockholders’ equity					673,000
Total liabilities and equity				$	1,154,000

To prepare a master budget for January, February, and March of 2016, management gathers the following information.

a.	Dimsdale Sports’ single product is purchased for $20 per unit and resold for $55 per unit. The expected inventory level of 4,750 units on December 31, 2015, is more than management’s desired level for 2016, which is 20% of the next month’s expected sales (in units). Expected sales are: January, 6,750 units; February, 9,500 units; March, 10,750 units; and April, 9,500 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, 2015, 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, 2015, accounts payable balance, $80,000 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, 2015, balance sheet was purchased in January 2015. 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, $98,400; and March, $21,600. 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 $150,000, 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 $12,150 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:

Prepare a master budget for each of the first three months of 2016; include the following component budgets:

5.

value:
15.00 points

Required information

5.	Monthly capital expenditures budgets.

     

References

eBook & Resources

Expanded tableDifficulty: 3 HardLearning Objective: 22-P4 Appendix-Prepare each component of a master budget and link each to the budgeting process-for a merchandising company.

Check my work

6.

value:
15.00 points

Required information

6.	Monthly cash budgets.

     
     

References

eBook & Resources

Expanded tableDifficulty: 3 HardLearning Objective: 22-P4 Appendix-Prepare each component of a master budget and link each to the budgeting process-for a merchandising company.

Check my work

7.

value:
15.00 points

Required information

7.	Budgeted income statement for the entire first quarter (not for each month).

     

References

eBook & Resources

Expanded tableDifficulty: 3 HardLearning Objective: 22-P4 Appendix-Prepare each component of a master budget and link each to the budgeting process-for a merchandising company.

Check my work

8.

value:
15.00 points

Required information

8.	Budgeted balance sheet as of March 31, 2016.

Answer 1

1. Sales Budgets:

	January	February	March	Quarter
Budgeted Sales in Units	6,750	9,500	10,750	27,000
Selling Price per Unit	$ 55	$ 55	$ 55	$ 55
Budgeted Sales Revenue	$ 371,250	$ 522,500	$ 591,250	$ 1,485,000

2. Schedule of Expected Cash Collections from Sales:

	January	February	March	Quarter
Cash Sales	$ 74,250	$ 104,500	$ 118,250	$ 297,000
Collection of Credit Sales of
December	125,000	395,000	0	520,000
January	0	187,110	109,890	297,000
February	0	0	263,340	263,340
Totals	199,250	686,610	491,480	1,377,340

3. Merchandise Purchases Budget:

	January	February	March	Quarter
Cost of Goods Sold ( Expected Sales x $ 20)	$ 135,000	$ 190,000	$ 215,000	$ 540,000
Add: Desired Ending Inventory	38,000	43,000	38,000	38,000
Total Inventory Needs	173,000	233,000	253,000	578,000
Less: Beginning Inventory	95,000	38,000	43,000	95,000
Budgeted Merchandise Purchases	78,000	195,000	210,000	483,000

4. Schedule of Expected Cash Disbursements for Merchandise Purchases:

	January	February	March	Quarter
Cash Disbursements for
Accounts Receivable, December 2015	80,000	295,000	0	375,000
January Purchases		15,600	62,400	78,000
February Purchases			39,000	39,000
Totals	80,000	310,600	101,400	492,000

6.

Dimsdale Sports Company
Cash Budget
For the months January, February, March 2016
	$	$	$	$
Beginning Cash Balance	35,000	12,150	166,160	35,000
Cash Receipts	199,250	686,610	491,480	1,377,340
Total Cash Available	234,250	698,760	657,640	1,412,340
Less: Cash Disbursements for
Merchandise Purchases	80,000	310,600	101,400	492,000
Sales Commissions ( 20%)	74,250	104,500	118,250	297,000
Sales Salaries	6,000	6,000	6,000	18,000
General and Administrative Salaries	11,000	11,000	11,000	33,000
Maintenance Expense	2,100	2,100	2,100	6,300
Purchase of Equipment	33,600	98,400	21,600	153,600
Purchase of Land	0	0	150,000	150,000
Income Taxes	0	0	91,000	91,000
Interest on loan	150	0	0	150
Total Cash Disbursements	207,100	532,600	501,350	1,241,050
Cash Surplus ( Deficiency)	27,150	166,160	156,290	171,290
Financing
Beginning	15,000	0	0	15,000
Additional Borrowings	0	0	0	0
Repayment	(15,000)	0	0	(15,000)
Total Financing	0	0	0	0
Ending Cash Balance	12,150	166,160	156,290	156,290

7.

Dimsdale Sports Company
Budgeted Income Statement
For the Quarter ended March 31, 2016
	$	$
Budgeted Sales Revenue		1,485,000
Budgeted Cost of Goods Sold		540,000
Gross Profit		945,000
Less: Operating Expenses
Sales Commission Expense	297,000
Sales Salaries Expense	18,000
General and Administrative Salaries Expense	33,000
Maintenance Expense	6,300
Depreciation Expense *	21,325
Total Operating Expenses		375,625
Net Operating Income		569,375
Interest Expense		150
Income before Taxes		569,225
Income Tax Expense		210,613
Net Income		358,612

* Computation of Depreciation Expense for the quarter:

Existing Equipment [ $ 576,000 / ( 8 x 12) ] x 3	$ 18,000
Equipment purchased in January [ $ 33,600 / ( 8 x 12) ] x 3	1,050
Equipment purchased in February [ $ 98,400 / ( 8 x 12) ] x 2	2,050
Equipment purchased in March [ $ 21,600 / ( 8 x 12) ]	225
Total	$ 21,325

8.

Dimsdale Sports Company
Budgeted Balance Sheet
March 31, 2016
Assets	$	$
Cash	156,290
Accounts Receivable ( February: $ 154,660, March: $ 473,000)	627,660
Inventory	38,000
Total Current Assets		821,950
Equipment	729,600
Accumulated Depreciation	(93,325)	636,275
Land		150,000
Total Assets		$ 1,608,225
Liabilities and Stockholders' Equity
Accounts Payable	366,000
Income Taxes Payable	210,613
Total Current Liabilities		576,613
Stockholders' Equity
Common Stock	473,500
Retained Earnings	558,112	1,031,612
Total Liabilities and Stockholders' Equity		1,608,225