Question
Near the end of 2011, the management of Simid Sports Co., a merchandising company, prepared the following estimated statement of financial position for December 31,
Near the end of 2011, the management of Simid Sports Co., a merchandising company, prepared the following estimated statement of financial position for December 31, 2011. |
SIMID SPORTS COMPANY Estimated Statement of Financial position December 31, 2011 | |||||
Assets | |||||
Cash | $ | 35,500 | |||
Accounts receivable | 520,000 | ||||
Inventory | 157,500 | ||||
Total current assets | 713,000 | ||||
Equipment | $ | 536,000 | |||
Less accumulated depreciation | 67,000 | 469,000 | |||
Total assets | $ | 1,182,000 | |||
Liabilities and Equity | |||||
Accounts payable | $ | 375,000 | |||
Bank loan payable | 16,000 | ||||
Tax payable (due 3/15/2012) | 89,000 | ||||
Total liabilities | $ | 480,000 | |||
Share capitalordinary | 473,500 | ||||
Retained earnings | 228,500 | ||||
Total stockholders equity | 702,000 | ||||
Total liabilities and equity | $ | 1,182,000 | |||
To prepare a master budget for January, February, and March of 2012, management gathers the following information. |
a. | Simid Sports single product is purchased for $30 per unit and resold for $54 per unit. The expected inventory level of 5,250 units on December 31, 2011, is more than managements desired level for 2012, which is 20% of the next months expected sales (in units). Expected sales are: January, 7,000 units; February, 8,750 units; March, 10,500 units; and April, 9,500 units. | ||
b. | Cash sales and credit sales represent 25% and 75%, respectively, of total sales. Of the credit sales, 63% is collected in the first month after the month of sale and 37% in the second month after the month of sale. For the December 31, 2011, accounts receivable balance, $125,000 is collected in January and the remaining $395,000 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, 2011, accounts payable balance, $75,000 is paid in January and the remaining $300,000 is paid in February. | ||
d. | Sales commissions equal to 20% of sales are paid each month. Sales salaries (excluding commissions) are $90,000 per year. | ||
e. | General and administrative salaries are $144,000 per year. Maintenance expense equals $2,000 per month and is paid in cash. | ||
f. | Equipment reported in the December 31, 2011, statement of financial position was purchased in January 2011. It is being depreciated over eight years under the straight-line method with no residual value. The following amounts for new equipment purchases are planned in the coming quarter: January, $34,000; February, $95,000; and March, $28,500. This equipment will be depreciated under the straight-line method over eight years with no residual value. A full months 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 $145,000, which will be paid with cash on the last day of the month. | ||
h. | Simid 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 $32,740 in each month. | ||
i. | The income tax rate for the company is 37%. Income tax on the first quarters income will not be paid | ||
Answer the following questions(5---8) | |||
5. | Monthly capital expenditures budgets. 6.Monthly cash budgets. | ||
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8. | Budgeted statement of financial position as at March 31, 2012. |
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