[The following information applies lo tnt Near the end of 2013, the management of Ramsey Clothing Co., a merchandising company, prepared the following estimated balance sheet for December 31, 2013 RAMSEY CLOTHING COMPANY Estimated Balance Sheet December 31, 2013 Assets Cash $36,000 520,000 Accounts receivable 150,000 Inventory 706,000 $544,000 Total current assets Equipment Less accumulated depreciation 68,000 476,000 Equipment, net $ 1,182,000 Total assets $360,000 Liabilities and Equity Accounts payable Bank loan payable Taxes payable (due 3/15/2014) 16,000 91,000 Total liabilities Common stock $ 467,000 470,000 245,000 Retained earnings 715,000 Total stockholders' equity Total liabilities and equity $1,182,000 To prepare a master budget for January, February, and March of 2014, management gathers the following information. a. Ramsey Clothing single product is purchased for $30 per unit and resold for $55 per unit. The expected inventory level of 5,000 units on December 31, 2013, is more than management's desired level for 2014, which is 20% of the next month's expected sales (in units). Expected sales are: January 7,000 units: February, 9,000 units; March, 11,250 units; and April, 10.500 units. b. Cash sales and credit sales represent 20% and 80%, respectively, of total sales. Of the credit sales, 65% is collected in the first month after the month of sale and 35% in the second month after the month of sale. For the December 31, 2013, 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, 2013, accounts payable balance, $75,000 is paid in January and the remaining $285,000 is paid in February d. Sales commissions equal to 20% of sales are paid each month. Sales salaries (excluding commissions) are $54,000 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, 2013, balance sheet was purchased in January 2013. 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, $38,000; February. $94,000; and March, $29,500. 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. 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. Ramsey Clothing 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 $13,340 in each month. 1. The income tax rate for the company is 35%. 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 2014; include the following component budgets: 6. Monthly cash budgets. RAMSEY CLOTHING CO. Cash Budget January, February, and March 2014 January February Beginning cash balance $ 36,000 Cash receipts from customers Total cash available March Cash disbursements: Payments for merchandise Sales commissions Sales salaries General & administrative salaries Maintenance expense Interest on bank loan Purchases of equipment Purchase of land Taxes payable 0 0 0 Total cash disbursements 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 Calculation of Cash receipts from customers January February March Sales in units Selling price per unit Total budgeted sales Cash sales Sales on credit 20% B0% Collected in Total January February 520,000 $ 125,000 $ 395,000 March 31 Receivable March Accounts Receivable - January $ 0 Credit sales from January February March 0 $ Total collection of receivables 125,000 $ 395.000 5 05 0 Total cash receipts from customers January February March Collections of receivables Calculation of payments for marchandiser January February March Deared ending inventory (units) Budgeted sales in units Total uniis required Beginning inventory (unit) Number of units to be purchased Cost per unit Total cost of purchases Paid in Total January February 300,000 $ 75,000 $ 285.000 March 31 Payable March $ Accounts Payable January Merchandise purchases in: January February March O D Total cash paid for merchandise 5 75,000 $ 285,000 $ OS O