Near the end of 2013, the management of Dimsdale Sports Co., amerchandising company, prepared the following estimated balancesheet for December 31, 2013.
DIMSDALE SPORTS COMPANY
Estimated Balance Sheet
December 31, 2013 Assets Cash $ 37,000 Accountsreceivable 520,000 Inventory 95,000 Total currentassets 652,000 Equipment $ 539,000 Less accumulateddepreciation 67,375 Equipment, net 471,625 Total assets $ 1,123,625 Liabilities and Equity Accountspayable $ 360,000 Bank loanpayable 15,000 Taxes payable (due3/15/2014) 89,000 Totalliabilities $ 464,000 Common stock 470,500 Retainedearnings 189,125 Totalstockholders
Near the end of 2013, the management of Dimsdale Sports Co., amerchandising company, prepared the following estimated balancesheet for December 31, 2013. |
| DIMSDALE SPORTS COMPANY Estimated Balance Sheet December 31, 2013 | |||||
| Assets | |||||
| Cash | $ | 37,000 | |||
| Accountsreceivable | 520,000 | ||||
| Inventory | 95,000 | ||||
| Total currentassets | 652,000 | ||||
| Equipment | $ | 539,000 | |||
| Less accumulateddepreciation | 67,375 | ||||
| Equipment, net | 471,625 | ||||
| Total assets | $ | 1,123,625 | |||
| Liabilities and Equity | |||||
| Accountspayable | $ | 360,000 | |||
| Bank loanpayable | 15,000 | ||||
| Taxes payable (due3/15/2014) | 89,000 | ||||
| Totalliabilities | $ | 464,000 | |||
| Common stock | 470,500 | ||||
| Retainedearnings | 189,125 | ||||
| Totalstockholders | |||||
Related questions
Problem 7-5A Merchandising: Preparation of a complete masterbudget LO C2, P1, P2
[The following information applies to the questionsdisplayed below.]
Near the end of 2013, the management of Dimsdale Sports Co., amerchandising company, prepared the following estimated balancesheet for December 31, 2013. |
| DIMSDALE SPORTS COMPANY Estimated Balance Sheet December 31, 2013 | |||||
| Assets | |||||
| Cash | $ | 36,000 | |||
| Accountsreceivable | 525,000 | ||||
| Inventory | 150,000 | ||||
| Total currentassets | 711,000 | ||||
| Equipment | $ | 540,000 | |||
| Less accumulateddepreciation | 67,500 | ||||
| Equipment, net | 472,500 | ||||
| Total assets | $ | 1,183,500 | |||
| Liabilities and Equity | |||||
| Accountspayable | $ | 360,000 | |||
| Bank loanpayable | 15,000 | ||||
| Taxes payable (due3/15/2014) | 90,000 | ||||
| Totalliabilities | $ | 465,000 | |||
| Common stock | 472,500 | ||||
| Retainedearnings | 246,000 | ||||
| Totalstockholders | |||||
[The following information applies to the questionsdisplayed below.]
Near the end of 2013, the management of Dimsdale Sports Co., amerchandising company, prepared the following estimated balancesheet for December 31, 2013. |
| DIMSDALE SPORTS COMPANY Estimated Balance Sheet December 31, 2013 | |||||
| Assets | |||||
| Cash | $ | 37,000 | |||
| Accountsreceivable | 520,000 | ||||
| Inventory | 142,500 | ||||
| Total currentassets | 699,500 | ||||
| Equipment | $ | 537,000 | |||
| Less accumulateddepreciation | 67,125 | ||||
| Equipment, net | 469,875 | ||||
| Total assets | $ | 1,169,375 | |||
| Liabilities and Equity | |||||
| Accountspayable | $ | 380,000 | |||
| Bank loanpayable | 14,000 | ||||
| Taxes payable (due3/15/2014) | 91,000 | ||||
| Totalliabilities | $ | 485,000 | |||
| Common stock | 473,500 | ||||
| Retainedearnings | 210,875 | ||||
| Total stockholdersâequity | 684,375 | ||||
| Total liabilitiesand equity | $ | 1,169,375 | |||
To prepare a master budget for January, February, and March of2014, management gathers the following information. |
| a. | Dimsdale Sportsâ single product is purchased for $30 per unitand resold for $54 per unit. The expected inventory level of 4,750units on December 31, 2013, is more than managementâs desired levelfor 2014, which is 20% of the next monthâs expected sales (inunits). Expected sales are: January, 6,750 units; February, 8,700units; March, 10,500 units; and April, 10,500 units. |
| b. | Cash sales and credit sales represent 30% and 70%, respectively,of total sales. Of the credit sales, 61% is collected in the firstmonth after the month of sale and 39% in the second month after themonth of sale. For the December 31, 2013, accounts receivablebalance, $120,000 is collected in January and the remaining$400,000 is collected in February. |
| c. | Merchandise purchases are paid for as follows: 20% in the firstmonth after the month of purchase and 80% in the second month afterthe month of purchase. For the December 31, 2013, accounts payablebalance, $85,000 is paid in January and the remaining $295,000 ispaid in February. |
| d. | Sales commissions equal to 20% of sales are paid each month.Sales salaries (excluding commissions) are $60,000 per year. |
| e. | General and administrative salaries are $144,000 per year.Maintenance expense equals $2,000 per month and is paid incash. |
| f. | Equipment reported in the December 31, 2013, balance sheet waspurchased in January 2013. It is being depreciated over eight yearsunder the straight-line method with no salvage value. The followingamounts for new equipment purchases are planned in the comingquarter: January, $36,000; February, $96,000; and March, $28,000.This equipment will be depreciated under the straight-line methodover eight years with no salvage value. A full monthâs depreciationis taken for the month in which equipment is purchased. |
| g. | The company plans to acquire land at the end of March at a costof $155,000, which will be paid with cash on the last day of themonth. |
| h. | Dimsdale Sports has a working arrangement with its bank toobtain additional loans as needed. The interest rate is 12% peryear, and interest is paid at each month-end based on the beginningbalance. Partial or full payments on these loans can be made on thelast day of the month. The company has agreed to maintain a minimumending cash balance of $39,310 in each month. |
| i. | The income tax rate for the company is 39%. Income taxes on thefirst quarterâs income will not be paid until April 15. |
| Required: |
Prepare a master budget for each of the first three months of2014; include the following component budgets: monthly salesbudget, monthly merchandise purchase budgets, Monthly sellingexpense budgets, Monthly general and administrative expensebudgets, Monthly capital expenditures budgets, Monthly cashbudgets, Budgeted income statement for the entire first quarter(not for each month), and Budgeted balance sheet as of March 31,2014. |
