Question

Near the end of 2019, the management of Dimsdale Sports Co., a merchandising company, prepared the following estimated balance sheet for December 31, 2019.

Estimated Balance Sheet
Assets
Cash	$	36,500
Accounts receivable		520,000
Inventory		105,000
Total current assets				$	661,500
Equipment		612,000
Less: Accumulated depreciation		76,500
Equipment, net					535,500
Total assets				$	1,197,000
Liabilities and Equity
Accounts payable	$	375,000
Bank loan payable		12,000
Taxes payable (due 3/15/2020)		89,000
Total liabilities				$	476,000
Common stock		474,500
Retained earnings		246,500
Total stockholders’ equity					721,000
Total liabilities and equity				$	1,197,000

To prepare a master budget for January, February, and March of 2020, management gathers the following information.

1. The company’s single product is purchased for $20 per unit and resold for $57 per unit. The expected inventory level of 5,250 units on December 31, 2019, is more than management’s desired level, which is 20% of the next month’s expected sales (in units). Expected sales are January, 7,500 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, 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, 2019, accounts receivable balance, $120,000 is collected in January 2020 and the remaining $400,000 is collected in February 2020.
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, 2019, accounts payable balance, $65,000 is paid in January 2020 and the remaining $310,000 is paid in February 2020.
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, 2019, balance sheet was purchased in January 2019. 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.
7. The company plans to buy land at the end of March at a cost of $160,000, 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 $19,000 at the end of each month.
9. The income tax rate for the company is 39%. Income taxes on the first quarter’s income will not be paid until April 15.

Monthly capital expenditures budgets.

Calculate the budgeted cash receipts and cash payments. (Negative values should be indicated with minus sign. Round your final answers to the nearest whole dollar.)

Calculation of Cash receipts from customers: January February March Sales in units Selling price per unit Total budgeted sales Cash sales 20% Sales on credit 80% ------------------Collected in-------------- March 31 Total January February March Receivable Accounts Receivable - January 1 $520,000 $120,000 $400,000 Credit sales from: January $0 February 0 March 0 Total collection of receivables $120,000 $400,000 $0 $0 Total cash receipts from customers January February March Collections of receivables Calculation of payments for merchandise: January February March Desired ending inventory (units) Budgeted sales in units Total units required Beginning inventory (units) Number of units to be purchased Cost per unit Total cost of purchases ----------------Paid in--------------- March 31 Total January February March Payable Accounts Payable - January 1 $375,000 $65,000 $310,000 Merchandise purchases in: January $0 February 0 March 0 Total cash paid for merchandise $65,000 $310,000 $0 $0

Monthly cash budgets. (Negative balances and Loan repayment amounts (if any) should be indicated with minus sign. Round your final answers to the nearest whole dollar.)

Answer 1

Calculation of Cash Receipts from Customers
		January	February	March
Sales in Unit		7500	9500	10750
Selling price per unit		57	57	57
Total Budgeted Sales		427500	541500	612750
Cash Sales	20%	85500	108300	122550
Sale on Credit	80%	342000	433200	490200
Cash Collection of Credit sales
61% in first month			208620	264252
39% in Secound Month				133380
Account Receivable Collection of 31 Dec		120000	400000
Total Cash Collected for Credit Sales		120000	608620	397632
Calculation of payments for merchandise:
		January	February	March
Desired ending inventory (units)		1900	2150	2000
Budgeted sales in units		7500	9500	10750
Total units required		9400	11650	12750
Beginning inventory (units)		5250	1900	2150
Number of units to be purchased		4150	9750	10600
Cost per unit		20	20	20
Total cost of purchases		83000	195000	212000
Paid in		January	February	March
Accounts Payable - January 1		65000	310000
Merchandise purchases in:
January			16600	66400
February				39000
March
Total cash paid for merchandise		65000	326600	105400
Calculation of Interest payable on Working capital loan
Opening Balance		12000	0	0
Additions/(Repayment)		-12000
Closing Balance		0
Interest @ 12% PA		120	0	0
Cash Budget
Particular		January	February	March
Opening Cash balance		36500	24280	193600
Add:
Cash Sales		85500	108300	122550
Total Cash Collected for Credit Sales		120000	608620	397632
Less:
Total cash paid for merchandise		65000	326600	105400
Sales Commission @ 20% of Sales		85500	108300	122550
Sales Salaries		7500	7500	7500
General and administrative salaries		12000	12000	12000
Maintenance Expenses		2000	2000	2000
New Equipment Purchase		33600	91200	26400
Purchase of Land				160000
Interest of working capital		120
Taxes				89000
Repayment of Loan		12000
Closing cash balance Subject to Minimum of 19000		24280	193600	188932