Question

In: Accounting

[The following information applies to the questions displayed below.] Near the end of 2015, the management...

[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 $ 36,000
  Accounts receivable 520,000
  Inventory 110,000
  
  Total current assets $ 666,000
  Equipment $ 528,000
  Less accumulated depreciation 66,000
  
     Equipment, net 462,000
  
  Total assets $ 1,128,000
  
Liabilities and Equity
  Accounts payable $ 375,000
  Bank loan payable 15,000
  Taxes payable (due 3/15/2016) 90,000
  
  Total liabilities $ 480,000
  Common stock 474,000
  Retained earnings 174,000
  
  Total stockholders’ equity 648,000
  
  Total liabilities and equity $ 1,128,000
  


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 $54 per unit. The expected inventory level of 5,500 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, 7,250 units; February, 9,500 units; March, 10,750 units; and April, 10,500 units.

b.

Cash sales and credit sales represent 25% and 75%, respectively, of total sales. Of the credit sales, 61% is collected in the first month after the month of sale and 39% 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 $78,000 per year.

e.

General and administrative salaries are $144,000 per year. Maintenance expense equals $2,200 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, $38,400; 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.

g.

The company plans to acquire land at the end of March at a cost of $175,000, 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 $26,325 in each month.

i.

The income tax rate for the company is 39%. 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.

     

References

eBook & Resources

Expanded table

Solutions

Expert Solution

Master budget for First quarter
Items January February March Quarter
Budgeted sales in units 7250 9500 10750 27500
Budgeted sales price per unit $54 $54 $54 $54
Sales revenue $391,500 $513,000 $580,500 $1,485,000
Cash Sales $97,875 $128,250 $145,125 $371,250
Credit Sales $293,625 $384,750 $435,375 $1,113,750
Cash collection for credit sales for Dec $125,000 $395,000 $520,000
Cash collection for credit sales for Jan $179,111 $114,514 $293,625
Cash collection for credit sales for feb $234,698 $234,698
Total Cash Reciepts $222,875 $702,361 $494,336 $1,419,573
Budgeted sales in units 7250 9500 10750 27500
Add: Ending Inventory (20%) 1900 2150 2100 2100
Less: Beginning Inventory 5500 1900 2150 5500
Budgeted purchase units 3650 9750 10700 24100
Purchase price per unit $20 $20 $20 $20
Purchase cost $73,000 $195,000 $214,000 $482,000
Cash paid for mechandise of Dec $80,000 $295,000 $375,000
Cash paid for mechandise of Jan $14,600 $58,400 $73,000
Cash paid for mechandise of Feb $39,000 $39,000
Cash paid for invontory $80,000 $309,600 $97,400 $487,000
Sales commission $78,300 $102,600 $116,100 $297,000
Sales Salaries $6,500 $6,500 $6,500 $19,500
General and administrative salaries $12,000 $12,000 $12,000 $36,000
Maintenance expenses $2,200 $2,200 $2,200 $6,600
Taxes paid $90,000
Total cash disbursement $179,000 $432,900 $324,200 $936,100
Capital Expenditure
New equipment purchase $38,400 $96,000 $28,800 $163,200
New land purchase $175,000 $175,000
Total Capital expenditure $38,400 $96,000 $203,800 $338,200
Total Cash Outflow $217,400 $528,900 $528,000 $1,274,300
Net cash inflow $5,475 $173,461 ($33,664) $145,273
Minimum balance requirement $26,325 $26,325 $26,325 $26,325
Beginning Cash Balance $36,000 $26,325 $199,786 $36,000
Cash inflow $5,475 $173,461 ($33,664) $145,272
Additional loan required
Loan repaid $15,000 $15,000
Interest paid $150 $150
Ending Cash Balance $26,325 $199,786 $166,122 $166,122

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