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:

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

the solution is after the intial five budget
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
Accounts receivable (371250*40%)+453750	$602,250
ans b
Mercandise Purchase Budget
January february March
	January	February	March	Total
Next month's budgeted sales (units)	9,000	11,000	10,000
Ratio of inventory to future sales	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
Accounts payable on 31 March (282000*80%)+324000		$549,600
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
Cash disbursement budget
	January	February	March	Total
For Accounts payable	80000	280000		360000
For January purchases (20%, 80%)		$22,800	$91,200	114000
For Februry purchases			$56,400	56400
For March purchases				0
Cash payment for purchases	80000	302800	147600	530400
Cash Budget
Jan , feb March
	January	February	March	Total
Beginning cash balance	$36,000	$25,000	$99,455	$36,000
Cash receipts from customers	221,250	697,000	489,500	1,407,750
Total cash available	$257,250	$722,000	$588,955	$1,443,750
Cash disbursements:
Payments for raw materials	80,000	302,800	147,600	530,400
Sales commission (20%*sales value)	77000	99000	121000	297,000
Sales salaries	$60,000	$60,000	$60,000	180,000
General & administrative Salaries	$12,000	$12,000	$12,000	36,000
Maintenance expenses	$2,000	$2,000	$2,000	6,000
Taxes payable			$90,000	90,000
Purchase of equipment	$36,000	$96,000	$28,800	160,800
Purcahse of Land			150000	150,000
Total cash disbursements	267,000	571,800	611,400	1,450,200
Preliminary cash balance	-9,750	150,200	-22,445	($6,450)
Additional loan (loan repayment)	34,750	-49,750	47,445	32,445
Interest paid (34750*2%)+(15000*2%)		-995		-995
Ending cash balance	$25,000	$99,455	$25,000	$25,000
Income Statement
For the Quarter ended 31 March
Sales		1,485,000
Less: cost of good sold (30*27000)		810000
Gross Margin		675,000
Less: Selling & adminstrative expenses
Sales commission (20%*sales value)	297,000
Sales salaries	180,000
General & administrative Salaries	36,000
Maintenance expenses	6,000
Depreciation expenses	22425
(540000/96*3)+(36000/96*3)+(132000/96*2)+(160800/96*1)
Total selling and adm expenses		541,425
Income before interest & taxes		133,575
Less: interest expenses		995
Income before taxes		132,580
Income tax expenses		53032
Net Income		79,548
Balance Sheet
For the year ending 31st December 2018
Assets
Current assets
Cash	$25,000
Accounts Receivable, net	$602,250
Inventory	60000
Total current assets		687250
Land		150000
Equipment	700,800
Less: Accumulated Depreciation (67500+22425)	89925	610875
Total assets		1448125
Liabilities & stockholder equity
Current liabilities
Accounts payable	$549,600			0
Bank loan payable	47,445
Income tax payable	53032
Total Current liabilities		650077
stockholder equity
common stock	472500
Retained earnings (246000+79548)	325,548
Total stockholder equity		798048
Total Liabilities & stockholder equity		1448125