Near the end of 2017, the management of Dimsdale Sports Co., a merchandising company, prepared the following estimated balance sheet for December 31, 2017.

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 $56 per unit. The expected inventory level of 4,750 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, 7,250 units; February, 9,500 units; March, 11,250 units; and April, 11,000 units.

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, $130,000 is collected in January and the remaining $390,000 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, $70,000 is paid in January and the remaining $285,000 is paid in February.

Sales commissions equal to 20% of sales are paid each month. Sales salaries (excluding commissions) are $84,000 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, $91,200; 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.

The company plans to buy land at the end of March at a cost of $170,000, 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 $24,000 at the end of each month.

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:

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.

Near the end of 2017, the management of Dimsdale Sports Co., a merchandising company, prepared the following estimated balance sheet for December 31, 2017.

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:

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.

Near the end of 2017, the management of Dimsdale Sports Co., a merchandising company, prepared the following estimated balance sheet for December 31, 2017.

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.

Problem 22-8AA Merchandising: Preparation of a complete master budget LO P4 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 $ 36,500 Accounts receivable 520,000 Inventory 105,000 Total current assets $ 661,500 Equipment 552,000 Less: accumulated depreciation 69,000 Equipment, net 483,000 Total assets $ 1,144,500 Liabilities and Equity Accounts payable $ 345,000 Bank loan payable 13,000 Taxes payable (due 3/15/2018) 89,000 Total liabilities $ 447,000 Common stock 470,500 Retained earnings 227,000 Total stockholders’ equity 697,500 Total liabilities and equity $ 1,144,500 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 $20 per unit and resold for $59 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, 7,250 units; February, 8,750 units; March, 11,500 units; and April, 11,000 units. Cash sales and credit sales represent 20% and 80%, respectively, of total sales. Of the credit sales, 65% is collected in the first month after the month of sale and 35% 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. 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, $70,000 is paid in January and the remaining $275,000 is paid in February. Sales commissions equal to 20% of sales are paid each month. Sales salaries (excluding commissions) are $54,000 per year. General and administrative salaries are $144,000 per year. Maintenance expense equals $2,100 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, $38,400; February, $100,800; 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 $145,000, 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 $16,000 at the end of each month. The income tax rate for the company is 35%. 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.

Attachment A

Amana Ltd was facing its first loss since listing five years ago and the chairperson of the board of directors/CEO was not about to let that happen. His bonus was tied to reported earnings. He owes shares in the company and knows the psychological impact of a first-time loss will hit his company’s share price. He asked staff who were also affected by the bonus rules to turn the loss to a small profit by the following methods:

Create fictitious inventory by adding false count sheets to the inventory count;

Bring sales for the first 10 days of the subsequent year forward;

Postpone the recognition of the expenses associated with suppliers’ invoices until the subsequent period; and

Create false claims for credit on goods returned and volume discounts that had been supposedly agreed to by suppliers.

Required

Bonus plans and employee share ownership are generally considered to be features that align the incentives of managers with those of shareholders. Is this the case for Amana Ltd?

What is the accounting impact of each of the methods listed above? For each method, identify the major account balance/class of transaction and assertion at risk of misstatement.

For each method, list two audit procedures or tests that would detect these attempts to commit fraud.

In one (1) page or less, choose 5 financial accounting topics that we’ve covered this semester and relate them to your personal life or the real world (outside of accounting, or course). I have provided a list below to give you some ideas, but please feel free to think outside the box.

Income Statement

Balance Sheet

Statement of Cash Flows

Bank Reconciliation

Liabilities

Bonds

Notes

Assets

Equity

Chart of Accounts

Debits and Credits

Lower of Cost or Market

Bookkeeping

Payroll

Taxes

Inventory and Cost of Goods Sold

Depreciation

Accumulated Depreciation

Adjusting Entries

Journal Entries

General Ledger

Closing Entries

Receivables

Bad Debt Expense

Interest

Prepaid Expenses

Unearned Revenue

Sales

Sales Returns and Allowances

Sales Discounts

Inventory Valuation

FIFO – First in, First out

LIFO – Last in , First out

Specific Identification

Weighted Average

Sole Proprietorship

Corporation

Conservatism

Creditors

Equipment

T-Accounts

Net Income

Trial Balance

Temporary Accounts

Permanent Accounts

Audit report

Ratios

Debt-to-assets

Asset Turnover

Net Profit Margin

Sarbanes-Oxley Act

IFRS

Segregation of duties

Unqualified Opinion

The cost of production of completed and transferred goods during the period amounted to $540,000, and the finished products shipped to customers had production costs of $375,000. The entry to record the transfer of costs from finished goods to cost of goods sold is

a.

Cost of Goods Sold540,000

Finished Goods540,000

b.

Finished Goods375,000

Cost of Goods Sold375,000

c.

Cost of Goods Sold375,000

Finished Goods375,000

d.

Finished Goods540,000

Cost of Goods Sold540,000

2)Production and sales estimates for May for the Cardinal Co. are as follows:

The number of units expected to be sold in May is

a.20,070

b.22,300

c.13,500

d.26,760

3)Finch Company began its operations on March 31 of the current year. Finch has the following projected costs:

(1) Of the manufacturing costs, three-fourths are paid for in the month they are incurred; one-fourth is paid in the following month.
(2) Insurance expense is $840 a month; however, the insurance is paid four times yearly in the first month of the quarter, (i.e., January, April, July, and October).
(3) Property tax is paid once a year in November.

The cash payments for Finch Company expected in the month of June are

a.$258,250

b.$161,250

c.$209,750

d.$48,500

4)Finch Company began its operations on March 31 of the current year. Finch has the following projected costs:

(1) Of the manufacturing costs, three-fourths are paid for in the month they are incurred; one-fourth is paid in the following month.
(2) Insurance expense is $1,000 a month; however, the insurance is paid four times yearly in the first month of the quarter, (i.e., January, April, July, and October).
(3) Property tax is paid once a year in November.

The cash payments for Finch Company expected in the month of June are

a.$214,000

b.$212,000

c.$215,500

d.$188,800

5)Finch Company began its operations on March 31 of the current year. Finch has the following projected costs:

(1) Of the manufacturing costs, three-fourths are paid for in the month they are incurred; one-fourth is paid in the following month.
(2) Insurance expense is $1,000 a month; however, the insurance is paid four times yearly in the first month of the quarter, (i.e., January, April, July, and October).
(3) Property tax is paid once a year in November.

The cash payments expected for Finch Company in the month of May are

a.$149,900

b.$185,600

c.$189,100

d.$187,600

6)Next year’s sales forecast shows that 20,000 units of Product A and 22,000 units of Product B are going to be sold for prices of $10 and $12 per unit, respectively. The desired ending inventory of Product A is 20% higher than its beginning inventory of 2,000 units. The beginning inventory of Product B is 2,500 units. The desired ending inventory of B is 3,000 units.

Budgeted production of Product B for the year would be

a.23,200 units

b.22,500 units

c.24,500 units

d.26,500 units

7)Next year’s sales forecast shows that 20,000 units of Product A and 22,000 units of Product B are going to be sold for prices of $10 and $12 per unit, respectively. The desired ending inventory of Product A is 20% higher than its beginning inventory of 2,000 units. The beginning inventory of Product B is 2,500 units. The desired ending inventory of B is 3,000 units.

Total budgeted sales of both products for the year would be

a.$264,000

b.$464,000

c.$42,000

d.$200,000

You are a Consultant for the professional service firm, BUSI 2083 LLP. Your firm specializes in providing a wide variety of internal business solutions for different clients. One of the partners in your practice is impressed with the work you have completed to date and would like to give you additional responsibility. She has asked you to take the lead on this engagement with the hope that a successful outcome may lead to your promotion to Senior Consultant. You take the background files from the partner and get started.

Perfect Stitch Replica’s Limited, a nationwide distributor of low-cost imitation clothing, has an exclusive agreement for the distribution of the clothing. Sales have grown so rapidly over the last few years that it has become necessary to add new members to the management team. To date, the company's budgeting practices have been minimal, and at times, the company has experienced a cash shortage. You have been given responsibility for all planning and budgeting. Your first assignment is to prepare a master budget for the next three months, starting April 1. You are anxious to make a favourable impression and have assembled the information below.

Additional Information

The clothing is sold to retailers for an average price of $10 each. Recent and forecasted sales in units are as follows:

Ending inventories should be equal to 40% of the next month's sales in units.

The average cost of the clothing is $4 each. Purchases are paid for as follows: 50% in the month of purchase and the remaining 50% in the following month. All sales are on credit, with no discount, and payable within 15 days. The company has found, however, that only 20% of a month's sales are collected by month-end. An additional 70% is collected in the following month, and the remaining 10% is collected in the second month following sale. Bad debts have been negligible.

The company's monthly operating expenses are given below:

All operating expenses are paid during the month, in cash, with the exception of depreciation and insurance. Insurance is paid on an annual basis, in November of each year. The company plans to purchase $16,000 in new equipment during May and $40,000 in new equipment during June; both purchases will be paid in cash. The company declares dividends of $15,000 each quarter, payable in the first month of the following quarter. The company's balance sheet at March 31 is given below:

The company wants a minimum ending cash balance each month of $50,000. All borrowing is done at the beginning of the month; any repayments are made at the end of the month. The company has an agreement with a bank that allows it to borrow in increments of $1,000 at the beginning of each month. The interest rate on these loans is 1% per month, and for simplicity, assume that interest is not compounded. At the end of the quarter, the company would pay the bank all of the accumulated interest on the loan and as much of the loan as possible (in increments of $1,000), while still retaining at least $50,000 in cash.

Prepare the following budgets for the first three months of 2016:

1. A cash budget. Show the budget by month and in total.
2. A budgeted Income Statement for the three-month period ending June 30. Use the variable costing approach.

You are a Consultant for the professional service firm, BUSI 2083 LLP. Your firm specializes in providing a wide variety of internal business solutions for different clients. One of the partners in your practice is impressed with the work you have completed to date and would like to give you additional responsibility. She has asked you to take the lead on this engagement with the hope that a successful outcome may lead to your promotion to Senior Consultant. You take the background files from the partner and get started.

Perfect Stitch Replica’s Limited, a nationwide distributor of low-cost imitation clothing, has an exclusive agreement for the distribution of the clothing. Sales have grown so rapidly over the last few years that it has become necessary to add new members to the management team. To date, the company's budgeting practices have been minimal, and at times, the company has experienced a cash shortage. You have been given responsibility for all planning and budgeting. Your first assignment is to prepare a master budget for the next three months, starting April 1. You are anxious to make a favourable impression and have assembled the information below.

Additional Information

The clothing is sold to retailers for an average price of $10 each. Recent and forecasted sales in units are as follows:

Ending inventories should be equal to 40% of the next month's sales in units.

The average cost of the clothing is $4 each. Purchases are paid for as follows: 50% in the month of purchase and the remaining 50% in the following month. All sales are on credit, with no discount, and payable within 15 days. The company has found, however, that only 20% of a month's sales are collected by month-end. An additional 70% is collected in the following month, and the remaining 10% is collected in the second month following sale. Bad debts have been negligible.

The company's monthly operating expenses are given below:

All operating expenses are paid during the month, in cash, with the exception of depreciation and insurance. Insurance is paid on an annual basis, in November of each year. The company plans to purchase $16,000 in new equipment during May and $40,000 in new equipment during June; both purchases will be paid in cash. The company declares dividends of $15,000 each quarter, payable in the first month of the following quarter. The company's balance sheet at March 31 is given below:

The company wants a minimum ending cash balance each month of $50,000. All borrowing is done at the beginning of the month; any repayments are made at the end of the month. The company has an agreement with a bank that allows it to borrow in increments of $1,000 at the beginning of each month. The interest rate on these loans is 1% per month, and for simplicity, assume that interest is not compounded. At the end of the quarter, the company would pay the bank all of the accumulated interest on the loan and as much of the loan as possible (in increments of $1,000), while still retaining at least $50,000 in cash.

Prepare the following budgets for the first three months of 2016:

1. Provide a budgeted Balance Sheet as at June 30^th.