Near the end of 2011, the management of Simid Sports Co., a merchandising compan

Question

Near the end of 2011, the management of Simid Sports Co., a merchandising company, prepared the following estimated balance sheet for December 31, 2011.

To prepare a master budget for January, February, and March of 2012, management gathers the following information.

Simid Sports%u2019 single product is purchased for $30 per unit and resold for $53 per unit. The expected inventory level of 5,250 units on December 31, 2011, is more than management%u2019s desired level for 2012, which is 20% of the next month%u2019s expected sales (in units). Expected sales are: January, 7,250 units; February, 8,750 units; March, 11,250 units; and April, 10,500 units.

Cash sales and credit sales represent 20% and 80%, respectively, of total sales. Of the credit sales, 57% is collected in the first month after the month of sale and 43% in the second month after the month of sale. For the December 31, 2011, accounts receivable balance, $120,000 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, 2011, accounts payable balance, $90,000 is paid in January and the remaining $260,000 is paid in February.

Sales commissions equal to 20% of sales are paid each month. Sales salaries (excluding commissions) are $48,000 per year.

General and administrative salaries are $156,000 per year. Maintenance expense equals $2,200 per month and is paid in cash.

Equipment reported in the December 31, 2011, balance sheet was purchased in January 2011. 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, $37,000; February, $96,000; and March, $29,500. This equipment will be depreciated under the straight-line method over eight years with no salvage value. A full month%u2019s depreciation is taken for the month in which equipment is purchased.

The company plans to acquire land at the end of March at a cost of $155,000, which will be paid with cash on the last day of the month.

Simid 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 $-5,360 in each month.

The income tax rate for the company is 43%. Income taxes on the first quarter%u2019s income will not be paid until April 15.

SIMID SPORTS COMPANY
Estimated Balance Sheet
December 31, 2011 Assets   Cash $ 37,000   Accounts receivable 520,000   Inventory 157,500      Total current assets 714,500   Equipment $ 537,000   Less accumulated depreciation 67,125 469,875      Total assets $ 1,184,375    Liabilities and Equity   Accounts payable $ 350,000   Bank loan payable 16,000   Taxes payable (due 3/15/2012)
89,000

  

  Total liabilities $ 455,000   Common stock 475,000   Retained earnings 254,375      Total stockholders%u2019 equity 729,375      Total liabilities and equity $ 1,184,375   

Explanation / Answer

Sales units 20000
unit price 11
sales 220000 %
direct material 60000.00 27.27
direct labour 85000.00 38.64
total cogs 145000.00 65.91
gp 75000.00 34.09
voh 10000.00 4.55
super exp 11000 5.00
admin exp 9000 4.09
selling exp 5000.00 2.27
depr 12000 5.45
total op exp 47000.00 21.36
np 28000.00 12.73

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