Question

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		142,500
Total current assets				$	699,000
Equipment		552,000
Less: accumulated depreciation		69,000
Equipment, net					483,000
Total assets				$	1,182,000
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		472,500
Retained earnings		234,500
Total stockholders’ equity					707,000
Total liabilities and equity				$	1,182,000

To prepare a master budget for January, February, and March of 2018, management gathers the following information.

1. The company’s single product is purchased for $30 per unit and resold for $53 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, 6,500 units; February, 9,500 units; March, 10,750 units; and April, 10,000 units.
2. 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, $130,000 is collected in January and the remaining $390,000 is collected in February.
3. 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, $85,000 is paid in January and the remaining $285,000 is paid in February.
4. Sales commissions equal to 20% of sales are paid each month. Sales salaries (excluding commissions) are $90,000 per year.
5. General and administrative salaries are $144,000 per year. Maintenance expense equals $2,000 per month and is paid in cash.
6. 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, $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.
7. The company plans to buy land at the end of March at a cost of $165,000, which will be paid with cash on the last day of the month.
8. 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 $12,260 at the end of each month.
9. 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.

Answer 1

1. Monthly Sales budget frequired for janu - $ 344500, feb - $ 503500, March - $569750

2.Monthly purchase budget for jan - $ 109500, feb - 292500, march - 318000

3. Monthly Selling exp for jan - $76400, Feb - $108200, march -$ 121450

4. Monthky general and Administrative Budget for jan to march - $ 12000 each

5. Monthly capital Expenditure for Jan - $33600, feb - $ 91200, march - 38100

6. Monthly cash budget for jan - $220578, feb - $565201, march - $ 779493

Jan-18 Dec-17 Feb-18 Mar-18 Expected Sale Sale Proceeds 6500 9500 10750 344500 503500 569750 Cash Sale 68900 100700 113950 Credit Sale 275600 402800 455800 Collection in first month 179140 261820 Collection in second month 96460 Accounts Receivable of Dec 520000 130000 390000 Cash opening 36500 220578.8 565201.1 Total Cash 511000 1293219 1493231 85000 Accounts payable for dec 370000 285000 113950 Sales Commission 68900 100700 Sales Salary Genral and Administrative Expenses 7500 7500 7500 12000 12000 12000 Maintenance 2000 2000 2000 Depreciation of existing equipment Depreciaion of new euipement 5031.25 5031.25 5031.25 350 1386.364 1656.36 New land purchase 16500 57000 Inventory 142500 64500 60000 Bank Loan 14000 Interest on bank loan 140 Tax Payable 91000 109500 Purchase Cost 292500 318000 Accounts payable for first month 21900 58500 Accounts payable for second month Total Expenses 87600 370000 290421.3 728017.6 713737.6 Cash in hand 220578.8 565201.1 779493.5 Inventory in units purchase Price $30 $53 Sale Price Purchase in units 3650 9750 10600 Closing stock units 4750 1900 2150 2000