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

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

Schedule of sales Budget
	Jan	Feb	mar	Quarter
Sales in units	7000	9000	11000	27000
price per unit	55	55	55	55
Total sales	385000	495000	605000	1485000
Schedule of Expected cash Collections
	Jan	Feb	mar	Quarter
Sales	385000	495000	605000	1485000
Cash Sales	96250	123750	151250	371250
Credit sales
December	125000	400000		525000
Jan		173250	115500	288750
Feb			222750	222750
Total collections	221250	697000	489500	1407750
2
Merchandise purchase BUDGET
	Jan	Feb	mar	Quarter	APRIl
Units	7000	9000	11000		10000
Budgeted cost of goods sold	210000	270000	330000	816750	300000
Add: desired ending inventory	54000	66000	60000	60000
Total Needs	264000	336000	390000	990000
Less: beginning inventory	-150000	-54000	-66000	-66000
required purchases	114000	282000	324000	720000
Schedule of cash disbursements- Merchandise purchases
	Jan	Feb	mar	Quarter
December	80000	280000		360000
january		22800	91200	114000
febraury			56400	56400
Total Disbursements	80000	302800	147600	530400
Schedule of selling expenses budget
	Jan	Feb	mar	Quarter
Sales Commission	77000	99000	121000	297000
Sale salaries	5000	5000	5000	15000
Total sales expenses	82000	104000	126000	312000
	january	Febraury	march	Total
Equipment-beginning of january	5400000	5436000	5532000
Add: purchases	36000	96000	28800
Ending balance	5436000	5532000	5560800
Depreciation Expense	6000	7000	7300	20300
Schedule of administrative expenses
	Jan	Feb	mar	Quarter
Depreciation Expense	6000	7000	7300	20300
General and administrative salaries	12000	12000	12000	36000
maintenance expenses	2000	2000	2000	6000
Total administrative expenses	20000	21000	21300	62300
Capital Expenditure Budget
	Jan	Feb	mar	Quarter
Equipment purchased	36000	96000	28800	160800
Land	0	0	150000	150000
Total	36000	96000	178800	310800
3
CASH BUDGET
	jan	feb	march	Quarter
Beginning cash Blance	36000	30100	210300	36000
Add: Collections	221250	697000	489500	1407750
Total Cash Available	257250	727100	699800	1443750
Less: Cash Disbursements
For Inventory	80000	302800	147600	530400
For Expenses	96000	118000	140000	354000
For Equipment	36000	96000	28800	160800
Land	0	0	150000	150000
Total Cash Disbursements	212000	516800	466400	1195200
Excess / Deficiency of cash	45250	210300	233400	248550
Financing:
Borrowings	0	0		0
repayments	15000	0		15000
Interest	150	0	0	150
Total Financing	-15150	0	0	-15150
Ending cash Balance	30100	210300	233400	233400