Question

Problem 22-8AA Merchandising: Preparation of a complete master budget LO P4 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 $35, 500 520, 000 Accounts receivable Inventory Total current assets 100, 000 $655, 500 Equipment Less: accumulated depreciation 600, 000 75, 000 Equipment, net 525, 000 $ 1, 180, 500 Total assets Li abili ties and Equity Accounts payable Bank loan payable Taxes payable (due 3/15/2018) Total liabilities Common stock $ 355, 000 13, 000 90, 000 $458, 000 474, 500 Retained earnings Total stockholders' equity 248, 000 722, 500 $ 1, 180, 500 Total liabilities and equi ty To prepare a master budget for January, February, and March of 2018, management gathers the following information. a. The company's single product is purchased for $20 per unit and resold for $57 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, 9,000 units; March, 10,500 units; and April, 9,500 units b. Cash sales and credit sales represent 20% and 80%, 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, 2017, 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, 2017, accounts payable balance, $65,000 is paid in January and the remaining $290,000 is paid in February d. Sales commissions equal to 20% of sales are paid each month. Sales salaries (excluding commissions) are $96,000 per year e. General and administrative salaries are $144,000 per year. Maintenance expense equals $1,900 per month and is paid in cash f. 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, $93,600; 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 g. 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. h. 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 $27,000 at the end of each month. 1. The income tax rate for the company is 41%. 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 Complete this question by entering your answers in the tabs below Required 6Required 6 Calc Cash BudRequired 7 Required 8 Required 1 Required 2 Required 3 Required 4 Required 5 Monthly sales budgets DIMSDALE SPORTS Co. Sales Budget For January, February, and March 2018 Budgeted Unit BudgetedBudgeted Total Unit Price Sales Dollars 399,000 January 7,000S 57 57 February 9,000 513,000 March 10,500 57 598,500 26,500 1,510,500 Totals for the quarter Complete this question by entering your answers in the tabs below Required 6Required 6 Calc Cash BudRequired 7 Required 8 Required 1 Required 2 Required 3 Required 4 Required 5 Monthly merchandise purchases budgets DIMSDALE SPORTS CO Merchandise Purchases Budget January, February, and March 2018 January February March Next month's budgeted sales (units) 9,000 10,500 9,500 Ratio of inventory to future sales 20% 20% 20% 1,800 2,100 1,900 udgeted ending inventory (units) udgeted units sales for month 7,000 9,000 10,500 11,100 Required units of available merchandise 8,800 12,400 eginning inventory (units) Units to be purchased 20 20S 20S 20S Budgeted merchandise purchases KRequired 1 Required 3> Complete this question by entering your answers in the tabs below. Required 6 Required 6 Required 7 Required8 Required 1 Required 2 Required 3 Required 4 Required 5 Monthly selling expense budgets. DIMSDALE SPORTS COMPANY Selling Expense Budget January, February, and March 2018 January February March Budgeted sales 399,000 S 513,000 S 598,500 ales commission percent 79,800 Sales commissions Required 4 Required 2 Required 6 Required 6 Required 7 Required 8 Required 1 Required 2 Required 3 Required 4 Required 5 Calc Cash Bud Monthly general and administrative expense budgets. January February March Equipment- beginning of month S 600,000 Equipment purchases Equipment- end of month DIMSDALE SPORTS CO General and Administrative Expense Budget January, February, and March 2018 January February Required 3 Required 5 Required 6 Required 6 Required 7 Required 8 Required 1 Required 2 Required 3 Required 4 Required 5 Calc Cash Bud Monthly capital expenditures budgets DIMSDALE SPORTS COMPANY Capital Expenditures Budget January, February, and March 2018 January February March Total 〈 Required 4 Required 6 Calc Required 6 Required 6 Required 7 Required 8 Require Cash Bud Required 1 Required 2 Required 3 Required 4 Required 5 uired 4 Required 5 Calc 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: March January February Sales in units Selling price per unit Total budgeted sales Cash sales 20% Sales on credit March 31 Collected in March TotaJanuary Receivable Accounts Receivable January S 520,000 S 130,000 390,000 Credit sales from: January February March S 130,000 Total collection of receivables Total cash receipts from customers March January February Collections of receivables Calculation of payments for merchandise: February March January 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 S 355,000 65,000 290,000 Merchandise purchases in January February March Total cash paid for merchandise S 65,000 K Required 5 Required 6 Cash Bud> Required 6 Required 6 Required7 Required 8 Calc Cash Bud Required 1 Required 2 Required 3 Required 4 Required 5 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.) DIMSDALE SPORTS CO Cash Budget January, February, and March 2018 January February March Beginning cash balance Total cash available Cash payments for. Total cash payments Preliminary cash balance Ending cash balance Loan balance February January March Loan balance - Beginning of month Additional loan (loan repayment) Loan balance End of month Required 6 Calc Required 7 6 Required 6 Required 6 Required 7 Required 8 Required 1 Required 2 Required 3 Required 4Required 5 uired 4 Requireuird Calc Cash Bud Budgeted income statement for the entire first quarter (not for each month). (Round your final answers to the nearest whole dollar.) DIMSDALE SPORTS CO Budgeted Income Statement For Three Months Ended March 31, 2018 Operating expenses Total operating expenses KRequired 6 Cash Bud Required 8 > Required 6 Required 6 Required 7 Required 8 Requir Required 1 Required 2 Required 3 Required 4 Required 5 uired 4 Required s Calc Cash Bud Budgeted balance sheet as of March 31, 2018. (Round your final answers to the nearest whole dollar.) DIMSDALE SPORTS CO Budgeted Balance Sheet March 31, 2018 Assets Total current assets Equipment, net Total assets Liabilities and Equity Liabilities Bank loan payable Total liabilities Stockholders' Equity Total Stockholders' Equity Total Liabilities and Equity 〈 Required 7

Answer 1

Dimsdale Sports Co. Calculation Sales Budget Mar Mar Sales in units 7,000 9,000 10,500 26,500 Selling price per unit Total budgeted sales Sales units Selling price per unit 399,000 513,000 598,500 1,510,500 Expected Cash Receipts from Customers Quater Receivable Jan Receivable Cash sales 20% 399000"20% 513000*2096 598500*20% 79,800 102,600 119,700 302,100 Sales on credit 80% 399000*80% 513000*8096 598500*8096 319,200410,400 478,800 1,208,400 Cash collections Cash sales 79,800 102,600 119,700 302,100 Accounts Receivable 130,000 390,000 520,000 Jan sales 319200*59% 319200*41% 188,328 130,872 319,200 Feb sales 410400*5996 410400*41% 242,136 242,136 168,264 Mar sales 478,800 Total Collections 209,800 680,928 492,708 1,383,436 647,064 Merchandise Purchase Budget Next months budgted sales (units) Ratio of inventory to future sales 9,000 10,500 9,500 Desired Ending Inventory Budgeted sales Required Units of available merchandise 1,8002,100 1,900 9000 * 20% -10500"2096-9500"20% 7,0009,000 10,500 26,500 8,80011,100 12,400 28,400 -1800+7000 -2100+9000 1900+10500 End Inv of Jan End Inv of Feb Less Beginning Inventory Units to be purchased Purchase price per unit Required Purchases (5,000(1,800) (2,100) 3,800 9,300 10,300 23,400 20 20 76,000 186,000 206,000 468,000 -9300*20 -10300 20 ents-Purchases Mar 31 Quarter Payable Jan Accounts Payable 65,000 290,000 355,000 Jan Purchases 15,200 60,800 76,000 Feb Purchases 186000*2096 186000"80% 37,200 37,200 148,800 Mar Purchases 206,000 Total l payments for In 65,000 305,200 98,000 468,200 354,800 Selling Expense Budget Budgeted sales % of sales 399,000 513,000 598,500 1,510,500 20% 20% Sales commissions 79,800 102,600 119,700 302,100 General & Admin Expenses Budget Salaries 12,000 12,000 12,000 36,000 12 12 1,9001,9001,900 Maintenance Total disbursements 13,90013,900 13,900 41,700 Capital Expenditures Budget Equipment- beginning of month Equipment purchases Equipment- end of month 600,000633,600 727,200 600,000 33,600 93,600 26,400 153,600 633,600 727,200 753,600 753,600

Cash budget Mar er ar Cash balance, beginning 35,500 31,870 189,498 35,500 Add Cash collections 209,800 680,928 492,708 1,383,436 Total cash available 245,300 712,798 682,206 1,418,936 Less cash disbursements Inventory Purchases 65,000 305,200 98,000 468,200 Sales commissions 79,800 102,600 119,700 302,100 Sales salaries 8,000 8,000 8,000 24,000 General & Admin Expenses 13,900 13,900 13,900 41,700 Taxes 90,000 90,000 Equipment purchases 33,600 93,600 26,400 153,600 Land purchase 175,000 175,000 Total Cash payments 200,300 523,300 531,000 1,254,600 Preliminary cash balance 45,000 189,498 151,206 164,336 Financin Borrowings at beginning (13,000) Repayments at end Interest at 12% per year Total financing (13,000) -13000 * 12% *1/12 Cash balance, ending 31,870 189,498 151,206 151,206 Income Statement Reg 7 er ar Sales 399,000 513,000 598,500 1,510,500 7000 57 -10500*57 9000 57 Cost of goods sold -10500 20 140,000 180,000 210,000 530,000 Gross Profit 259,000 333,000 388,500 980,500 Operating expenses Sales commissions 79,800 102,600 119,700 302,100 Sales salaries 8,000 8,000 8,000 24,000 General & Admin Expenses 13,900 13,900 13,900 41,700 -633600/8 1/12 727200/8 1/12 753600/8 1/12 Depreciation expense 6,600 7,5757,850 22,025 Total Operating expenses 108,300132,075 149,450 389,825 Operating income 150,700 200,925 239,050 590,675 Interest expense Net Profit before tax 150,570 200,925 239,050 590,545 150570*41% 200925*4196 239050*41% Income tax expense 61,734 82,379 98,011 242,123 Net Profit 88,836 118,546 141,040 348,422 Balance Sheet Assets Cash 151,206 Accounts Receivable 647,064 Inventory 38,000 -1900 units *20 From Purchase budget 175,000 Equipment 753,600 Less Accmulated Depreciation (97,025 -75000-22025 Total Assets 1,667,845 Liabilities & Equity Accounts Payable 354,800 242,123 Taxes Payable Common Stock Retained Earnings Total Liabilities &Equity 596,422 248000+348422 Op bal+ Net income 1,667,845