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
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 | |||||
Related questions
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 | |||||
[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. |
| PROBLEM 22-5B | ||||||||||||
| Near the end of 2015, the management of IsleCorp., a merchandising company, prepared the | ||||||||||||
| following estimated balance sheet for December 31,2015. | ||||||||||||
| ISLE CORPORATION | ||||||||||||
| Estimated Balance Sheet | ||||||||||||
| 31-Dec-15 | ||||||||||||
| Assets | Liabilities and Equity | |||||||||||
| Cash | 36,000 | Accounts payable | 360,000 | |||||||||
| Accounts Receivable | 525,000 | Bank loan Payable | 15,000 | |||||||||
| Inventory | 150,000 | Taxes payable (due 3/15/2016) | 90,000 | |||||||||
| Total Current Assets | 711,000 | Total Liabilities | 465,000 | |||||||||
| Equipment | 540,000 | Common Stock | 472,500 | |||||||||
| Less Accumulated Depreciation | 67,500 | Retained Earnings | 246,000 | |||||||||
| Equipment, net | 472,500 | Total Stockholders' equity | 718,500 | |||||||||
| Total Assets | 1,183,500 | Total liabilities and equity | 1,183,500 | |||||||||
| To prepare the master budget for January, Februaryand March of 2016, management gathers the following | ||||||||||||
| information | ||||||||||||
| a. | Isle Corp.'s single product is purchased for $30per unit and resold for $45 per unit. The | |||||||||||
| expected inventory level of 5,000 units onDecember 31, 2015, is more than management's desired | ||||||||||||
| level for 2015, which is 25% of the next month'sexpected sales (in units). Expected sales are: | ||||||||||||
| January, 6,000 units; February, 8,000 units; March,10,000 units; and April, 9,000 units. | ||||||||||||
| b. | Cash sales and credit sales represent 25% and 75%,respectively, of total sales. Of the credit sales, | |||||||||||
| 60% is collected in the first month after themonth of sale and 40% in the second month after | ||||||||||||
| the month of sale. For the $525,000 accountsreceivable balance at December 31, 2015, | ||||||||||||
| $315,000 is collected in January 2016 and theremaining $210,000 is collected in February 2016. | ||||||||||||
| 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 ofpurchase. For the $360,000 accounts payable | ||||||||||||
| balance at December 31, 2015, $72,000 is paid inJanuary 2016 and the remaining $288,000 | ||||||||||||
| is paid in February 2016. | ||||||||||||
| d. | Sales commissions equal to 20% of sales are paideach month. Sales salaries (excluding commissions) | |||||||||||
| are $90,000 per year. | ||||||||||||
| e. | General and administrative salaries are $144,000per year. Maintenance expense equals $3,000 per month | |||||||||||
| and is paid in cash. | ||||||||||||
| f. | Equipment reported in the December 31, 2015balance sheet was purchased in January 2015. It is being | |||||||||||
| depreciated over 8 years under the straight-linemethod with no salvage value. The following amounts for | ||||||||||||
| new equipment purchases are planned in the comingquarter: January, $72,000; February, $96,000; and | ||||||||||||
| March, $28,800. This equipment will be depreciatedusing the straight-line method over 8 years with no | ||||||||||||
| salvage value. A full month's depreciation istaken for the month in which equipment is purchased. | ||||||||||||
| g. | The company plans to acquire land at the end ofMarch at a cost of $150,000, which will be paid with cash | |||||||||||
| on the last day of the month. | ||||||||||||
| h. | Isle Corp. has a working arrangement with its bankto obtain additional loans as needed. The interest rate | |||||||||||
| is 12% per year, and interest is paid at eachmonth-end based on the beginning balance. Partial or full | ||||||||||||
| payments on these loans can be made o the last dayof the month. Isle has agreed to maintain a minimum | ||||||||||||
| ending cash balance of $36,000 in each month. | ||||||||||||
| i. | The income ta rate for the company is 40%. Incometaxes on the first quarter's income will not be paid until | |||||||||||
| April 15. | ||||||||||||
| Prepare a master budget for the first three monthsof 2016. Round to the nearest dollar. | ||||||||||||
