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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 $ 36,000
Accounts receivable 520,000
Inventory 135,000
Total current assets $ 691,000
Equipment 600,000
Less: Accumulated depreciation 75,000
Equipment, net 525,000
Total assets $ 1,216,000
Liabilities and Equity
Accounts payable $ 340,000
Bank loan payable 12,000
Taxes payable (due 3/15/2020) 88,000
Total liabilities $ 440,000
Common stock 473,500
Retained earnings 302,500
Total stockholders equity 776,000
Total liabilities and equity $ 1,216,000

To prepare a master budget for January, February, and March of 2020, management gathers the following information.

  1. The companys single product is purchased for $30 per unit and resold for $60 per unit. The expected inventory level of 4,500 units on December 31, 2019, is more than managements desired level, which is 20% of the next months expected sales (in units). Expected sales are January, 6,750 units; February, 8,750 units; March, 10,500 units; and April, 10,500 units.
  2. 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, 2019, accounts receivable balance, $120,000 is collected in January 2020 and the remaining $400,000 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, $70,000 is paid in January 2020 and the remaining $270,000 is paid in February 2020.
  4. Sales commissions equal to 20% of sales are paid each month. Sales salaries (excluding commissions) are $60,000 per year.
  5. General and administrative salaries are $132,000 per year. Maintenance expense equals $1,800 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, $36,000; February, $100,800; and March, $19,200. This equipment will be depreciated under the straight-line method over eight years with no salvage value. A full months 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 $160,000, 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 $35,000 at the end of each month.
  9. The income tax rate for the company is 37%. Income taxes on the first quarters 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.image text in transcribedimage text in transcribedimage text in transcribed

Monthly sales budgets. DIMSDALE SPORTS CO. Sales Budget For January, February, and March 2020 Budgeted Unit Budgeted Budgeted Total Sales Unit Price Dollars January February March Totals for the quarter Monthly merchandise purchases budgets. DIMSDALE SPORTS CO. Merchandise Purchases Budget January, February, and March 2020 January February 8,750 10,500 20% 20% Next month's budgeted sales (units) March 10,500 20% Ratio of inventory to future sales Required units of available merchandise Units to be purchased Monthly selling expense budgets. DIMSDALE SPORTS COMPANY Selling Expense Budget January, February, and March 2020 January February March Budgeted sales Sales commissions

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