I need assistance with number six on this question. Near the end of 2015, the ma

Question

I need assistance with number six on this question.

Near the end of 2015, the management of Dimsdale Sports Co., a merchandising company, prepared the following estimated balance sheet for December 31, 2015.

To prepare a master budget for January, February, and March of 2016, management gathers the following information.

Dimsdale Sports’ single product is purchased for $20 per unit and resold for $53 per unit. The expected inventory level of 5,250 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, 6,750 units; February, 8,750 units; March, 11,000 units; and April, 9,000 units.

Cash sales and credit sales represent 20% and 80%, 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.

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, $75,000 is paid in January and the remaining $265,000 is paid in February.

Sales commissions equal to 20% of sales are paid each month. Sales salaries (excluding commissions) are $90,000 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, 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, $36,000; February, $94,000; and March, $29,000. 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 acquire land at the end of March at a cost of $180,000, which will be paid with cash on the last day of the month.

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 $12,650 in each month.

The income tax rate for the company is 39%. Income taxes on the first quarter’s income will not be paid until April 15.

Prepare a master budget for each of the first three months of 2016; include the following component budgets:

DIMSDALE SPORTS COMPANY
Estimated Balance Sheet
December 31, 2015 Assets   Cash $ 36,500   Accounts receivable 520,000   Inventory 105,000      Total current assets $ 661,500   Equipment $ 540,000   Less accumulated depreciation 67,500         Equipment, net 472,500      Total assets $ 1,134,000    Liabilities and Equity   Accounts payable $ 340,000   Bank loan payable 15,000   Taxes payable (due 3/15/2016) 89,000      Total liabilities $ 444,000   Common stock 470,500   Retained earnings 219,500      Total stockholders’ equity 690,000      Total liabilities and equity $ 1,134,000   

Explanation / Answer

DIMSDALE sport co.

Cash budget

January, February, March 2016

Loan Balance

Calculation of cash reciepts from customer

Collection from debtors

Calculation of payment for merchandise

Payment to creditors

January February March Opening cash balance 36500 27800 202882 Cash reciepts from customer 196550 662332 454528 Total cash available 233050 690132 657410 Cash disbursements Payment for merchandise 75000 277800 88000 Purchase of land 180000 Purchase of equipment 36000 94000 29000 General and adminstrative expenses 13000 13000 13000 Maintenance expenses 2200 2200 2200 Sales commission 71550 92750 116600 Salaries 7500 7500 7500 Interest on bank loan nil nil nil Tax payable nil nil nil Total cash disbursements 205250 487250 436300 Preliminary cash balance Additional loan/(loan repayment) nil nil nil Ending cash balance 27800 202882 221110

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.