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Dimsdale Sports Co.-3 month master budget




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.;DIMSDALE SPORTS COMPANY;Estimated Balance Sheet;December 31, 2013;Assets;Cash;$;36,000;Accounts receivable;520,000;Inventory;150,000;Total current assets;706,000;Equipment;$;538,000;Less accumulated;depreciation;67,250;Equipment, net;470,750;Total assets;$;1,176,750;Liabilities and Equity;Accounts payable;$;360,000;Bank loan payable;16,000;Taxes payable (due;3/15/2014);90,000;Total liabilities;$;466,000;Common stock;475,000;Retained earnings;235,750;Total;stockholders?equity;710,750;Total liabilities;and equity;$;1,176,750;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, 7,250 units, February, 9,000 units, March, 11,500 units, and April;10,000 units.;b.;Cash sales and credit sales represent 25% and 75%;respectively, of total sales. Of the credit sales, 57% is collected in the;first month after the month of sale and 43% 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 $66,000 per year.;e.;General and administrative salaries are $132,000 per year.;Maintenance expense equals $2,100 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, $37,000;February, $97,000, and March, $28,500. 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 $170,000, 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 $38,453 in;each month.;i.;The income tax rate for the company is 43%. 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;2014, include the following component budgets (show supporting calculation as;needed, and round amounts to the nearest dollar);1. Monthly sales budgets (showing both budgeted unit sales and;dollar sales).;2. Monthly merchandise purchase budgets.;3. Monthly selling expense budgets.;4. Monthly general and administrative expense budgets.;5. Montjly 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, 2014.


Paper#40126 | Written in 18-Jul-2015

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