Near the end of 2013, the management of Dimsdale Sports Co., a merchandising company, prepared the following estimated balance sheet for December 31, 2013.
DIMSDALE SPORTS COMPANY
Estimated Balance Sheet
December 31, 2013 Assets Cash $ 36,000 Accounts receivable 525,000 Inventory 150,000 Total current assets 706,000 Equipment $ 538,000 Less accumulated depreciation 67,250 Equipment, net 470,750 Total assets $ 1,176,750 Liabilities and Equity Accounts payable $ 360,000 Bank loan payable 16,000 Taxes payable (due 3/15/2014) 90,000 Total liabilities $ 466,000 Common stock 475,000 Retained earnings 235,750 Total stockholders
| Near the end of 2013, the management of Dimsdale Sports Co., a merchandising company, prepared the following estimated balance sheet for December 31, 2013. |
| DIMSDALE SPORTS COMPANY Estimated Balance Sheet December 31, 2013 | |||||
| Assets | |||||
| Cash | $ | 36,000 | |||
| Accounts receivable | 525,000 | ||||
| Inventory | 150,000 | ||||
| Total current assets | 706,000 | ||||
| Equipment | $ | 538,000 | |||
| Less accumulated depreciation | 67,250 | ||||
| Equipment, net | 470,750 | ||||
| Total assets | $ | 1,176,750 | |||
| Liabilities and Equity | |||||
| Accounts payable | $ | 360,000 | |||
| Bank loan payable | 16,000 | ||||
| Taxes payable (due 3/15/2014) | 90,000 | ||||
| Total liabilities | $ | 466,000 | |||
| Common stock | 475,000 | ||||
| Retained earnings | 235,750 | ||||
| Total stockholders | |||||
Related questions
Near the end of 2013, the management of Dimsdale Sports Co., a merchandising company, prepared the following estimated balance sheet for December 31, 2013.
| DIMSDALE SPORTS COMPANY Estimated Balance Sheet December 31, 2013 | |||||
| Assets | |||||
| Cash | $ | 36,000 | |||
| Accounts receivable | 520,000 | ||||
| Inventory | 105,000 | ||||
| Total current assets | 661,000 | ||||
| Equipment | $ | 539,000 | |||
| Less accumulated depreciation | 67,375 | ||||
| Equipment, net | 471,625 | ||||
| Total assets | $ | 1,132,625 | |||
| Liabilities and Equity | |||||
| Accounts payable | $ | 370,000 | |||
| Bank loan payable | 15,000 | ||||
| Taxes payable (due 3/15/2014) | 89,000 | ||||
| Total liabilities | $ | 474,000 | |||
| Common stock | 473,000 | ||||
| Retained earnings | 185,625 | ||||
| Total stockholdersâ equity | 658,625 | ||||
| Total liabilities and equity | $ | 1,132,625 | |||
| To prepare a master budget for January, February, and March of 2014, management gathers the following information. |
| a. | Dimsdale Sportsâ single product is purchased for $20 per unit and resold for $55 per unit. The expected inventory level of 5,250 units on December 31, 2013, is more than managementâs desired level for 2014, which is 20% of the next monthâs expected sales (in units). Expected sales are: January, 6,500 units; February, 9,100 units; March, 11,250 units; and April, 9,500 units. |
| b. | Cash sales and credit sales represent 20% and 80%, 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, 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, $80,000 is paid in January and the remaining $290,000 is paid in February. |
| d. | Sales commissions equal to 20% of sales are paid each month. Sales salaries (excluding commissions) are $90,000 per year. |
| e. | General and administrative salaries are $156,000 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, $35,000; February, $97,000; and March, $29,000. This equipment will be depreciated under the straight-line method over eight years with no salvage value. A full monthâs 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 $150,000, which will be paid with cash on the last day of the month. |
| h. | Dimsdale Sports 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 $8,350 in each month. |
| i. | The income tax rate for the company is 43%. Income taxes on the first quarterâs 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: (PLEASE INCLUDE ALL PERTINENT INFORMATION FOR INFO LISTED BELOW)
|
Near the end of 2013, the management of Dimsdale Sports Co., a merchandising company, prepared the following estimated balance sheet for December 31, 2013.
| DIMSDALE SPORTS COMPANY Estimated Balance Sheet December 31, 2013 | |||||
| Assets | |||||
| Cash | $ | 36,000 | |||
| Accounts receivable | 520,000 | ||||
| Inventory | 105,000 | ||||
| Total current assets | 661,000 | ||||
| Equipment | $ | 539,000 | |||
| Less accumulated depreciation | 67,375 | ||||
| Equipment, net | 471,625 | ||||
| Total assets | $ | 1,132,625 | |||
| Liabilities and Equity | |||||
| Accounts payable | $ | 370,000 | |||
| Bank loan payable | 15,000 | ||||
| Taxes payable (due 3/15/2014) | 89,000 | ||||
| Total liabilities | $ | 474,000 | |||
| Common stock | 473,000 | ||||
| Retained earnings | 185,625 | ||||
| Total stockholdersâ equity | 658,625 | ||||
| Total liabilities and equity | $ | 1,132,625 | |||
| To prepare a master budget for January, February, and March of 2014, management gathers the following information. |
| a. | Dimsdale Sportsâ single product is purchased for $20 per unit and resold for $55 per unit. The expected inventory level of 5,250 units on December 31, 2013, is more than managementâs desired level for 2014, which is 20% of the next monthâs expected sales (in units). Expected sales are: January, 6,500 units; February, 9,100 units; March, 11,250 units; and April, 9,500 units. |
| b. | Cash sales and credit sales represent 20% and 80%, 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, 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, $80,000 is paid in January and the remaining $290,000 is paid in February. |
| d. | Sales commissions equal to 20% of sales are paid each month. Sales salaries (excluding commissions) are $90,000 per year. |
| e. | General and administrative salaries are $156,000 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, $35,000; February, $97,000; and March, $29,000. This equipment will be depreciated under the straight-line method over eight years with no salvage value. A full monthâs 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 $150,000, which will be paid with cash on the last day of the month. |
| h. | Dimsdale Sports 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 $8,350 in each month. |
| i. | The income tax rate for the company is 43%. Income taxes on the first quarterâs income will not be paid until April 15. |
| Required: | ||||||
| Prepare a master budget for each of the first three months of 2014; include component budgets for the following areas:
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