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Near the end of 2013 the management of Dimsdale Sports Co a merchandising company prepared the following estimated balance sheet for December 31 2013 IMSDALE SPORTS COMPANY Estimated Balance

Near the end of 2013, the management of Dimsdale Sports Co., a merchandising company, prepared the following estimated balance sheet for December 31, 2013.

IMSDALE SPORTS COMPANY
Estimated Balance Sheet
December 31, 2013

Assets

         

  Cash

$

37,000

     

  Accounts receivable

 

520,000

     

  Inventory

 

150,000

     

  

         

  Total current assets

       

707,000

  Equipment

$

538,000

     

  Less accumulated depreciation

 

67,250

     

  

         

     Equipment, net

       

470,750

  

         

  Total assets

     

$

1,177,750

  

         

Liabilities and Equity

         

  Accounts payable

$

360,000

     

  Bank loan payable

 

15,000

     

  Taxes payable (due 3/15/2014)

 

89,000

     

  

         

  Total liabilities

     

$

464,000

  Common stock

 

470,500

     

  Retained earnings

 

243,250

     

  

         

  Total stockholdersAc€?c equity

       

713,750

  

         

  Total liabilities and equity

     

$

1,177,750

To prepare a master budget for January, February, and March of 2014, management gathers the following information.

a.

Dimsdale SportsAc€?c single product is purchased for $30 per unit and resold for $53 per unit. The expected inventory level of 5,000 units on December 31, 2013, is more than managementAc€?cs desired level for 2014, which is 20% of the next monthAc€?cs expected sales (in units). Expected sales are: January, 7,000 units; February, 8,700 units; March, 11,500 units; and April, 10,000 units.

b.

Cash sales and credit sales represent 30% and 70%, respectively, of total sales. Of the credit sales, 59% is collected in the first month after the month of sale and 41% in the second month after the month of sale. For the December 31, 2013, accounts receivable balance, $130,000 is collected in January and the remaining $390,000 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 $78,000 per year.

e.

General and administrative salaries are $132,000 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, $36,000; February, $96,000; and March, $30,000. This equipment will be depreciated under the straight-line method over eight years with no salvage value. A full monthAc€?cs 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 $180,000, 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 $58,450 in each month.

i.

The income tax rate for the company is 41%. Income taxes on the first quarterAc€?cs income will not be paid until April 15.

Monthly general and administrative expense budgets.

 

January

February

March

 

Equipment - beginning of month

$538,000

$574,000

$670,000

 

Equipment purchases

36,000

96,000

30,000

Equipment - end of month

$574,000

$670,000

$700,000

Monthly depreciation expense

     ?

?

?

 
 
         
   
   
   
   
   

 

Monthly cash budgets

Calculation of Cash Receipts from customers: January, February, March

Sales in units

Selling price per unit

Total Budgeted sales

Cash Sales        30%

Sales on credit    70%

   -Collected in-                                                                         March 31

             Total                Jan.                   Feb.              Mar.                Receivable

Accts

Rec Ac€?o Jan. 1 520,000         130,000             390,000

  

Credit sales from:

          Jan

          Feb

          Mar.

Total collection of

receiveables

    

Total cash receipts from customers Ac€?o Jan., Feb., Mar

Calculation of payments for merchandise Ac€?o Jan., Feb. Mar

i.Paid In

Cash budget

Loan Balance

Budgeted Income Statement

Budgeted Balance Sheet

 

May 02 2020 View more View Less

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