Problem 07-8AA Merchandising: Preparation of a complete master budget LO P4

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, 2019AssetsCash$35,500Accounts receivable520,000Inventory100,000Total current assets$655,500Equipment528,000Less: Accumulated depreciation66,000Equipment, net462,000Total assets$1,117,500Liabilities and EquityAccounts payable$340,000Bank loan payable13,000Taxes payable (due 3/15/2020)91,000Total liabilities$444,000Common stock473,500Retained earnings200,000Total stockholders' equity673,500Total liabilities and equity$1,117,500

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

1. The company's single product is purchased for $20 per unit and resold for $57 per unit. The expected inventory level of 5,000 units 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, 7,000 units; February, 8,750 units; March, 11,000 units; and April, 10,500 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, $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 $144,000 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, $31,200; February, $100,800; 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 $145,000, 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 $22,000 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 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.

Required 1 Required 2 Required 3 Required 4 |Required 5 Required 6 Required 6 Required 7 Calc Cash Bud Monthly sales budgets. DIMSDALE SPORTS CO. Sales Budget For January, February, and March 2020 Budgeted Unit Budgeted Budgeted Total Sales Unit Price Dollars January 7,000 S 57 380,000 February 8,750 57 498,750 March 11,000 57 627,000 Totals for the quarter 26,750 1,524,750 Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 6 Required 7 Calc Cash Bud Required 8 Monthly merchandise purchases budgets. DIMSDALE SPORTS CO. Merchandise Purchases Budget January, February, and March 2020 January February March Total Next month's budgeted sales (units) 8,750 11,000 10,500 Ratio of inventory to future sales 20% 209% 209% Budgeted ending inventory (units) 1,750 2,200 2.100 Budgeted units sales for month 7,000 8,750 11,000 Required units of available merchandise 8,750 10,950 13,100 Beginning inventory (units) (5,000) (1,750) (2,200) Units to be purchased 3,750 9,200 10,800 23,850 Budgeted cost per unit 20 20 20 S 20 Budgeted merchandise purchases 75,000 184,000 218,000 477,000 Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 6 Calc Cash Bud Required 7 Required B Monthly selling expense budgets. DIMSDALE SPORTS COMPANY Selling Expense Budget January, February, and March 2020 January February March Total Budgeted sales 390,000 S 408,750 S 827.000 Sales commission percent 2096 2096 Sales commissions 79,800 90.750 125.400 304,850 Sales salaries 5.000 5.000 5.000 15.000 Total budgeted selling expenses 84.800 3 104.750 130.400 319.950 Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 6 Calc Cash Bud Required 7 Required 8 Monthly general and administrative expense budgets. January February March Equipment - beginning of month $ 528.000 Equipment purchases Equipment - end of month DIMSDALE SPORTS CO. General and Administrative Expense Budget January, February, and March 2020 January February March Salaries expense Maintenance expense Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 6 Calc Cash Bud Required 7 Required 8 Monthly capital expenditures budgets. DIMSDALE SPORTS COMPANY Capital Expenditures Budget January, February, and March 2020 January February March Total Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 6 Cash Bud Required 7 Required 8 Calc Calculate the budgeted cash receipts and cash payments. ( Negative values should be indicated with minus sign, Round final answers to the nearest whole dollar.) Calculation of Cash receipts from customers: January February March Sales in units Selling price per unit Total budgeted sales Cash sales 209% Sales on credit BOY Collected in- March 31 Total January February March Receivable Accounts Receivable - January S 520,000 125,000 395,000 1 Credit sales from: January February 0 March Total collection of receivables 125,000 S 395,000 S S 0 Total cash receipts from customers January February March Collections of receivablesTotal cash receipts from customers January February March Collections of receivables Calculation of payments for merchandise: January February March Desired ending inventory (units) Budgeted sales in units Total units required Beginning inventory (units) Number of units to be purchased Cost per unit Total cost of purchases --Paid in-- March 31 Total January February March Payable Accounts Payable - January 1 340,000 S 70,000 270,000 Merchandise purchases in: January February March Total cash paid for merchandise S 70,000 270,000 S S Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 6 Calc Cash Bud Required 7 Required 8 Monthly cash budgets. (Negative balances and Loan repayment amounts (if any) should be indicated with minus sign. R your final answers to the nearest whole dollar,) DIMSDALE SPORTS CO. Cash Budget January, February, and March 2020 January February March Beginning cash balance Total cash available Cash payments for. Total cash payments 0 Preliminary cash balance Ending cash balance Loan balance January February MarchLoan balance January February March Loan balance - Beginning of month Additional loan (loan repayment) Loan balance - End of month Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 6 Calc Cash Bud Required 7 Required 8 Budgeted Income statement for the entire first quarter (not for each month). (Round your final answers to the nearest whole dollar.) DIMSDALE SPORTS CO. Budgeted Income Statement For Three Months Ended March 31, 2020 Operating expenses Total operating expenses Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 6 Calc Cash Bud Required 7 Required 8 Budgeted balance sheet as of March 31, 2020. (Round your final answers to the nearest whole dollar,) DIMSDALE SPORTS CO. Budgeted Balance Sheet March 31, 2020 Assets Total current assets Equipment, net 0 Total assets Liabilities and Equity Liabilities Bank loan payable Total liabilities Stockholders' Equity Total Stockholders' Equity Total Liabilities and Equity