20-8AA (Algo) Merchandising: Preparation of a complete master budget LO P4 Dimsdale Sports, a merchandising company, reports the following balance sheet at December 31. DIMSDALE SPORTS COMPANY Balance Sheet Cash Assets Accounts receivable Inventory Equipment December 31 Less: Accumulated depreciation Total assets Liabilities and Equity Liabilities Accounts payable Loan payable Taxes payable (due March 15) Equity Common stock $ 21,000 520,000 157,500 $ 636,000 79,500 556,500 $ 1,255,000 $ 355,000 13,000 88,000 456,000 $ 471,500 327,500 799,000 Retained earnings Total liabilities and equity $ 1,255,000 To prepare a master budget for January, February, and March, use the following information. a. The company's single product is purchased for $30 per unit and resold for $56 per unit. The inventory level of 5,250 units on December 31 is more than management's desired level, which is 20% of the next month's budgeted sales units. Budgeted sales are January, 6,500 units; February, 8,500 units; March, 11,250 units; and April, 10,500 units. All sales are on credit. b. Cash receipts from sales are budgeted as follows: January, $257,400; February, $696,194; March, $500,052. c. Cash payments for merchandise purchases are budgeted as follows: January, $60,000; February, $312,700; March, $125,100. d. Sales commissions equal to 20% of sales dollars are paid each month. Sales salaries (excluding commissions) are $7,500 per month. e. General and administrative salaries are $13,000 per month. Maintenance expense equals $1,900 per month and is paid in cash. f. New equipment purchases are budgeted as follows: January, $33,600; February, $93,600; and March, $21,600. Budgeted depreciation expense is January, $ 6,975; February, $7,950; and March, $8,175. g. The company budgets a land purchase 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 an agreement with its bank to obtain additional loans as needed. The interest rate is 1% per month and interest is paid at each month-end based on the beginning-month balance. Partial or full payments on these loans are made on the last day of the month. The company maintains a minimum ending cash balance of $21,000 at the end of 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. Required: Prepare a master budget for the months of January, February, and March that has the following budgets: 1. Sales budgets. 2. Merchandise purchases budgets. 3. Selling expense budgets. 4. General and administrative expense budgets. Hint: Depreciation is included in the general and administrative budget for merchandisers. 5. Capital expenditures budgets. 6. Cash budgets. 7. Budgeted income statement for entire quarter (not monthly) ended March 31. 8. Budgeted balance sheet as of March 31. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 7 Required 8 Sales budgets. DIMSDALE SPORTS Sales Budget January February March Totals Budgeted sales units 0 Selling price per unit Total budgeted sales $ 0 $ 0 $ 0 $ 0 Required 1 Required 2 > Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 7 Required 8 Merchandise purchases budgets. Next period budgeted sales units Ratio of inventory to future sales Desired ending inventory units Total required units Units to be purchased Cost per unit Cost of merchandise purchases DIMSDALE SPORTS Merchandise Purchases Budget January February March < Required 1 Required 3 > Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 7 Required 8 Selling expense budgets. Budgeted sales Sales commissions DIMSDALE SPORTS Selling Expense Budget January February March < Required 2 Required 4 > Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 7 Required 8 General and administrative expense budgets. Hint: Depreciation is included in the general and administrative budget for merchandisers. DIMSDALE SPORTS General and Administrative Expense Budget January February March Total Total general and administrative expenses < Required 3 Required 5 > Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 7 Required 8 Capital expenditures budgets. DIMSDALE SPORTS Capital Expenditures Budget January February March Total capital expenditures < Required 4 Required 6 > Beginning cash balance Total cash available Less: Cash payments for: Total cash payments Preliminary cash balance Ending cash balance DIMSDALE SPORTS COMPANY Cash Budget Loan balance - Beginning of month Additional loan (loan repayment) Loan balance - End of month January February March 0 0 0 Loan balance January February March DIMSDALE SPORTS COMPANY Budgeted Income Statement For Three Months Ended March 31 Selling, general and administrative expenses Total operating expenses 0 0 0 Total assets Liabilities Equity DIMSDALE SPORTS COMPANY Budgeted Balance Sheet March 31 Assets Total Liabilities and Equity Liabilities and Equity 0 0 0