Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

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

DIMSDALE SPORTS COMPANY
Estimated Balance Sheet
December 31, 2019
Assets
Cash$36,500
Accounts receivable 520,000
Inventory 135,000
Total current assets $691,500
Equipment 564,000
Less: Accumulated depreciation 70,500
Equipment, net 493,500
Total assets $1,185,000
Liabilities and Equity
Accounts payable$365,000
Bank loan payable 14,000
Taxes payable (due 3/15/2020) 91,000
Total liabilities $470,000
Common stock 473,500
Retained earnings 241,500
Total stockholders’ equity 715,000
Total liabilities and equity $1,185,000

To prepare a master budget for January, February, and March of2020, management gathers the following information.

  1. The company’s single product is purchased for $30 per unit and resold for $57 per unit. The expected inventory level of 4,500units 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, 6,500 units; February, 9,250 units; March, 11,000 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, $125,000 is collected in January 2020 and the remaining $395,000 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 $300,000is paid in February 2020.
  4. Sales commissions equal to 20% of sales are paid each month. Sales salaries (excluding commissions) are $54,000 per year.
  5. General and administrative salaries are $156,000 per year. Maintenance expense equals $2,100 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, $40,800; February, $93,600; and March, $21,600.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$150,000, 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 $17,000 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.

Required:
Prepare a master budget for each of the first three months of 2020;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 31,2020.

Step by Step Solution

3.48 Rating (168 Votes )

There are 3 Steps involved in it

Step: 1

1 Calculation of Cash receipts from Customers Sales in units Selling price per unit Total Budgeted S... blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Fundamental Accounting Principles

Authors: John J Wild, Ken Shaw

24th edition

1259916960, 978-1259916960

More Books

Students also viewed these Accounting questions