Near the end of 2013, the management of Dimsdale Sports Co., a merchandising com
ID: 2772716 • Letter: N
Question
Near the end of 2013, the management of Dimsdale Sports Co., a merchandising company, prepared the following estimated balance sheet for December 31, 2013.
IMSDALE SPORTS COMPANY
Estimated Balance Sheet
December 31, 2013
Assets
Cash
$
37,000
Accounts receivable
520,000
Inventory
150,000
Total current assets
707,000
Equipment
$
538,000
Less accumulated depreciation
67,250
Equipment, net
470,750
Total assets
$
1,177,750
Liabilities and Equity
Accounts payable
$
360,000
Bank loan payable
15,000
Taxes payable (due 3/15/2014)
89,000
Total liabilities
$
464,000
Common stock
470,500
Retained earnings
243,250
Total stockholders’ equity
713,750
Total liabilities and equity
$
1,177,750
To prepare a master budget for January, February, and March of 2014, management gathers the following information.
a.
Dimsdale Sports’ single product is purchased for $30 per unit and resold for $53 per unit. The expected inventory level of 5,000 units on December 31, 2013, is more than management’s desired level for 2014, which is 20% of the next month’s expected sales (in units). Expected sales are: January, 7,000 units; February, 8,700 units; March, 11,500 units; and April, 10,000 units.
b.
Cash sales and credit sales represent 30% and 70%, 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, 2013, accounts receivable balance, $130,000 is collected in January and the remaining $390,000 is collected in February.
c.
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, 2013, accounts payable balance, $75,000 is paid in January and the remaining $285,000 is paid in February.
d.
Sales commissions equal to 20% of sales are paid each month. Sales salaries (excluding commissions) are $78,000 per year.
e.
General and administrative salaries are $132,000 per year. Maintenance expense equals $2,000 per month and is paid in cash.
f.
Equipment reported in the December 31, 2013, balance sheet was purchased in January 2013. 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, $30,000. 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.
g.
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.
h.
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 $58,450 in each month.
i.
The income tax rate for the company is 41%. Income taxes on the first quarter’s income will not be paid until April 15.
Monthly general and administrative expense budgets.
January
February
March
Equipment - beginning of month
$538,000
$574,000
$670,000
Equipment purchases
36,000
96,000
30,000
Equipment - end of month
$574,000
$670,000
$700,000
Monthly depreciation expense
?
?
?
Monthly cash budgets
Calculation of Cash Receipts from customers: January, February, March
Sales in units
Selling price per unit
Total Budgeted sales
Cash Sales 30%
Sales on credit 70%
-Collected in- March 31
Total Jan. Feb. Mar. Receivable
Accts
Rec – Jan. 1 520,000 130,000 390,000
Credit sales from:
Jan
Feb
Mar.
Total collection of
receiveables
Total cash receipts from customers – Jan., Feb., Mar
Calculation of payments for merchandise – Jan., Feb. Mar
i.Paid In
Cash budget
Loan Balance
Budgeted Income Statement
Budgeted Balance Sheet
IMSDALE SPORTS COMPANY
Estimated Balance Sheet
December 31, 2013
Assets
Cash
$
37,000
Accounts receivable
520,000
Inventory
150,000
Total current assets
707,000
Equipment
$
538,000
Less accumulated depreciation
67,250
Equipment, net
470,750
Total assets
$
1,177,750
Liabilities and Equity
Accounts payable
$
360,000
Bank loan payable
15,000
Taxes payable (due 3/15/2014)
89,000
Total liabilities
$
464,000
Common stock
470,500
Retained earnings
243,250
Total stockholders’ equity
713,750
Total liabilities and equity
$
1,177,750
Explanation / Answer
Working
Cash Budget January February March Net Cash Inflows 45374 146293 72705 Purchase of Equipment 36000 96000 30000 Purchase of Land 180000 Repayment of Loan 27076 Additional Loan Taken 12076 202779 Payment of Taxes 89000 Net Cash Flow 21450 23217 -23516 Opening Cash Balance 37000 58750 81967 Closing Cash Balance 58450 81967 58450 Minimum Balance to be maintained 58450 58450 58450 Additional Loan Requirement 0 0 0Related Questions
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