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, 2019
Assets
Cash	$	37,000
Accounts receivable		520,000
Inventory		100,000
Total current assets				$	657,000
Equipment		636,000
Less: Accumulated depreciation		79,500
Equipment, net					556,500
Total assets				$	1,213,500
Liabilities and Equity
Accounts payable	$	360,000
Bank loan payable		11,000
Taxes payable (due 3/15/2020)		91,000
Total liabilities				$	462,000
Common stock		470,500
Retained earnings		281,000
Total stockholders equity					751,500
Total liabilities and equity				$	1,213,500

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 $20 per unit and resold for $57 per unit. The expected inventory level of 5,000 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, 6,500 units; February, 9,250 units; March, 11,500 units; and April, 10,500 units.
2. Cash sales and credit sales represent 25% and 75%, respectively, of total sales. Of the credit sales, 57% is collected in the first month after the month of sale and 43% 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 $295,000 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 $2,000 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, $38,400; February, $91,200; and March, $24,000. 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 $180,000, 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 $42,000 at the end of each month.
9. The income tax rate for the company is 43%. 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. 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 Calc Cash Bud Required 7 Required & Calculate the budgeted cash receipts and cash payments. (Negative values should be indicated with minus sign. Round your 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 25% Sales on credit 75% -Collected in- March 31 Receivable March Total January February 520,000 $ 125,000 $ 395,000 Accounts Receivable - January 1 S Credit sales from S 0 January February 0 0 March Total collection of receivables $ 125,000 $ 395,000 S OS 0 Total 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 -Pald In March 31 Payable Total March January February 65,000 $ 295,000 S 380,000 S Accounts Payable January 1 Merchandise purchases in January February March S 0 0 0 Total cash paid for merchandise S 65,000 $ 295,000 $ OS 0 Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 6 Cash Bud Required 7 Required & - Monthly cash budgets. (Negative balances and Loan repayment amounts (if any) should be indicated with minus sign. Round 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: 0 Total cash payments Preliminary cash balance Ending cash balance Loan balance January February March Loan balance - Beginning of month Additional loan (loan repayment) Loan balance - End of month Required 6 Calc Required 7 > 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 0 $ 0 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 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 0 Equipment, net Total assets Liabilities and Equity Liabilities Bank loan payable Total liabilities Stockholders' Equity Total Stockholders' Equity Total Liabilities and Equity Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 6 Cash Bud Required 7 Required & - Monthly cash budgets. (Negative balances and Loan repayment amounts (if any) should be indicated with minus sign. Round 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: 0 Total cash payments Preliminary cash balance Ending cash balance Loan balance January February March Loan balance - Beginning of month Additional loan (loan repayment) Loan balance - End of month Required 6 Calc Required 7 > 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 0 $ 0 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 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 0 Equipment, net Total assets Liabilities and Equity Liabilities Bank loan payable Total liabilities Stockholders' Equity Total Stockholders' Equity Total Liabilities and Equity