DIMSDALE SPORTS COMPANY Estimated Balance Sheet December 31, 2017 Assets Cash $
ID: 2540408 • Letter: D
Question
DIMSDALE SPORTS COMPANY Estimated Balance Sheet December 31, 2017 Assets Cash $ 36,000 Accounts receivable 520,000 Inventory 100,000 Total current assets $ 656,000 Equipment 576,000 Less: accumulated depreciation 72,000 Equipment, net 504,000 Total assets $ 1,160,000 Liabilities and Equity Accounts payable $ 370,000 Bank loan payable 14,000 Taxes payable (due 3/15/2018) 91,000 Total liabilities $ 475,000 Common stock 474,000 Retained earnings 211,000 Total stockholders’ equity 685,000 Total liabilities and equity $ 1,160,000 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 $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, 9,250 units; March, 11,250 units; and April, 9,000 units. Cash sales and credit sales represent 25% and 75%, 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, 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, $65,000 is paid in January and the remaining $305,000 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 $132,000 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, $33,600; February, $91,200; and March, $26,400. 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 $175,000, 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 $49,000 at the end of 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. 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.
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Explanation / Answer
Answer a Sales Budget Jan Feb Mar Total Sales in Units 7,000 9,250 11,250 27,500 Sp Per Unit 55 55 55 55 Total Sales in $ 385,000 508,750 618,750 1,512,500 Cash Sales - 25% of Sales 96,250 127,188 154,688 378,125 Credit Sales - 75% of Sales 288,750 381,563 464,063 1,134,375 Answer b Schedule of Expected Cash Collections from Sales Jan Feb Mar Total Cash Sales 96,250 127,188 154,688 378,125 Collection from Accounts Receivables Accounts Receivable - Beg. Balance 130,000 390,000 520,000 Jan Sales - 176,137 112,613 288,750 Feb. Sales - - 232,753 232,753 Mar. Sales - - - - Total cash Collections 226,250 693,325 500,054 1,419,628 Answer c Merchandise Purchase Budget Jan Feb Mar Total Sales In units 7,000 9,250 11,250 27,500 Add: Closing Inventory in units 1,850 2,250 1,800 2,000 Total Needs 8,850 11,500 13,050 29,500 Less: opening Inventory in uints (5,000) (1,850) (2,250) (5,000) Required Purchases in Units 3,850 9,650 10,800 24,500 Price per Unit 20 20 20 20 Total Purchases in $ 77,000 193,000 216,000 486,000 Answer d Schedule of Cash payments to Suppliers Jan Feb Mar Total Cash Payment Accounts Payable - Beginning 65,000 305,000 - 370,000 Jan Purchases - 15,400 61,600 77,000 Feb Purchases - - 38,600 38,600 Mar Purchases - Total Cash Payment to Suppliers 65,000 320,400 100,200 485,600 Answer e Selling & Admn. Budget Jan Feb Mar Total Sales Comm. - 20% of Sales 77,000 101,750 123,750 302,500 Fixed Sales Salaries 5,000 5,000 5,000 15,000 General & Admn. Salaries 11,000 11,000 11,000 33,000 Maint. Exp. 2,100 2,100 2,100 6,300 Dep. 6,350 7,300 7,575 21,225 Total 101,450 127,150 149,425 378,025 Calculation of Dep. Exp. Jan Feb Mar Total Equipment in the Beginning 6,000 6,000 6,000 18,000 Purch in Jan. 350 350 350 1,050 Purch in Feb 950 950 1,900 Purch in Mar 275 275 Total Dep. 6,350 7,300 7,575 21,225 Schedule of Cash payments of Selling & Admn. Budget Jan Feb Mar Total Sales Comm. - 20% of Sales 77,000 101,750 123,750 302,500 Fixed Sales Salaries 5,000 5,000 5,000 15,000 General & Admn. Salaries 11,000 11,000 11,000 33,000 Maint. Exp. 2,100 2,100 2,100 6,300 Total 95,100 119,850 141,850 356,800 Monthly Capital Expenditure Budget Jan Feb Mar Total Equipment Purchased 33,600 91,200 26,400 151,200 Land Purchased - - 175,000 175,000 Total Capital Expenditure 33,600 91,200 201,400 326,200 Cash budget Jan Feb Mar Total Opening cash Balance 36,000 54,410 216,285 36,000 Add: receipts Collection from Customers 226,250 693,325 500,054 1,419,628 Total Cash available 262,250 747,735 716,338 1,455,628 Less: Disbursements Cash Disbursement - Accounts Payable 65,000 320,400 100,200 485,600 Selling & Admn. Exp. 95,100 119,850 141,850 356,800 Purchase of Equipment 33,600 91,200 26,400 151,200 Purchase of Land - - 175,000 175,000 Income Tax Paid 91,000 91,000 Total Disbursement 193,700 531,450 534,450 1,259,600 Cash Balance Closing 68,550 216,285 181,888 196,028 Add: Finance from Bank - - Less: Payment to Bank (14,000) - - (14,000) Less: Payment of interet - Bank loan (140) - - (140) Net Cash Balance Closing 54,410 216,285 181,888 181,888 Income Statement For the Qtr Ending Mar-31, 2018 Sales 1,512,500 Less: Variable Cost Cost of Goods Sold 550,000 Sales Comm. - 20% of Sales 302,500 852,500 Contribution 660,000 Less: Fixed Cost Sales Salaries 15,000 General & Admn. Salaries 33,000 Maint. Exp. 6,300 Dep. 21,225 75,525 Operating Profit 584,475 Less: Interest Expenses 140 Net Income 584,335 Less: Income Tax - 39% 227,891 Net Income After Tax 356,444 Balance Sheet As on Mar 31 Assets Current Assets Cash 181,888 Accounts receivables 612,872 Inventory 36,000 830,760 Fixed Assets Equipment 576,000 Add: Addition during the Qtr. 151,200 Less: Dep. (93,225) 633,975 Land 175,000 Total Assets 1,639,735 Liabilities Accounts Payable 370,400 Income Tax Payable 227,891 Total liabilities 598,291 Shareholders's Equity Common Stock 474,000 Retained Earnings 567,444 Total Stockholders equity 1,041,444 Total liabilities & Stockholders' Equity 1,639,735 - Schedule of Retained Earnings Opening Balance 211,000 Add: net income 356,444 Less: Dividend declared - Closing Balance 567,444
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