Question

Near the end of 2019, the management of Dimsdale Sports Co., a merchandising company, prepared the following estimated balance sheet for December 31, 2019.

DIMSDALE SPORTS COMPANY Estimated Balance Sheet December 31, 2019
Assets
Cash	$	36,500
Accounts receivable		520,000
Inventory		105,000
Total current assets				$	661,500
Equipment		612,000
Less: Accumulated depreciation		76,500
Equipment, net					535,500
Total assets				$	1,197,000
Liabilities and Equity
Accounts payable	$	375,000
Bank loan payable		12,000
Taxes payable (due 3/15/2020)		89,000
Total liabilities				$	476,000
Common stock		474,500
Retained earnings		246,500
Total stockholders’ equity					721,000
Total liabilities and equity				$	1,197,000

To prepare a master budget for January, February, and March of 2020, management gathers the following information.

1. The company’s single product is purchased for $20 per unit and resold for $57 per unit. The expected inventory level of 5,250 units on December 31, 2019, is more than management’s desired level, which is 20% of the next month’s expected sales (in units). Expected sales are January, 7,500 units; February, 9,500 units; March, 10,750 units; and April, 10,000 units.
2. Cash sales and credit sales represent 20% and 80%, respectively, of total sales. Of the credit sales, 61% is collected in the first month after the month of sale and 39% in the second month after the month of sale. For the December 31, 2019, accounts receivable balance, $120,000 is collected in January 2020 and the remaining $400,000 is collected in February 2020.
3. 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, 2019, accounts payable balance, $65,000 is paid in January 2020 and the remaining $310,000 is paid in February 2020.
4. Sales commissions equal to 20% of sales are paid each month. Sales salaries (excluding commissions) are $90,000 per year.
5. General and administrative salaries are $144,000 per year. Maintenance expense equals $2,000 per month and is paid in cash.
6. Equipment reported in the December 31, 2019, balance sheet was purchased in January 2019. 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, $33,600; February, $91,200; and March, $26,400. 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.
7. The company plans to buy land at the end of March at a cost of $160,000, which will be paid with cash on the last day of the month.
8. The company 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 $19,000 at the end of each month.
9. The income tax rate for the company is 39%. 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 2020; include the following component budgets.

1. Monthly sales budgets.
2. Monthly merchandise purchases budgets.
3. Monthly selling expense budgets.
4. Monthly general and administrative expense budgets.

Monthly sales budgets.

	DIMSDALE SPORTS CO. Sales Budget For January, February, and March 2020 Budgeted Unit Sales Budgeted Unit Price Budgeted Total Dollars January 7,500 $5,700 427,500 February 9,500 5,700 54,150,000 March 10,750 5,700 61,275,000 Totals for the quarter 27,750 $5,700.00 115,852,500

Monthly merchandise purchases budgets.

	DIMSDALE SPORTS CO. Merchandise Purchases Budget January, February, and March 2020 January February March Next month's budgeted sales (units) 9,500 10,750 10,000 Ratio of inventory to future sales 20% 20% 20% Required units of available merchandise Units to be purchased

Monthly selling expense budgets.

	DIMSDALE SPORTS COMPANY Selling Expense Budget January, February, and March 2020 January February March Budgeted sales $427,500 $541,500 $612,750 Sales commissions Total budgeted selling expenses

Monthly general and administrative expense budgets.

	January February March Equipment - beginning of month $612,000 Equipment purchases Equipment - end of month DIMSDALE SPORTS CO. General and Administrative Expense Budget January, February, and March 2020 January February March

Answer 1

DIMSDALE SPORTS CO. Sales Budget For January, February, and March, 2020 January February March Totals for the quarter Budgeted Unit Sales Budgeted Unit Price Budgeted Total Dollars 7500 57 427500 9500 57 541500 57 612750 27750 1581750 10750) DIMSDALE SPORTS CO. Merchandise Purchases Budget January, February, and March 2020 January Total February 9500 20% 1900) 7500 9400 5250 4150 Next month's budgeted sales (units) Ratio of inventory to future sales Budgeted ending inventory (units) Budgeted units sales for month Required units of available merchandise Beginning inventory (units) Units to be purchased Budgeted cost per unit Budgeted merchandise purchases March 10750 20% 2150 9500 11650 1900 9750 20 195000 10000 20% 2000 10750 12750 2150 10600 24500 20 20 83000 212000 490000

DIMSDALE SPORTS COMPANY Selling Expense Budget January, February, and March 2020 Budgeted sales Sales commission percent Sales commissions Sales salaries=90000/12 Total selling expenses January February March Total 427500 541500 612750 20% 20% 20% 85500 108300 122550 316350 7500 7500 7500 22500 93000 115800 130050 338850 Equipment - beginning of month Equipment purchases Equipment - end of month (x) Monthly depreciation expense =X/96 January February March Total 612000 645600 736800 33600 91200 26400 645600 736800 763200 6725 7675 7950 22350 DIMSDALE SPORTS CO. General and Administrative Expense Budget January, February, and March 2020 January February March Total Depreciation expense 672576757950 22350 Salaries expense=144000/12 12000 12000 12000 36000 Maintenance expense 2000 2000 2000 6000 Total 20725 21675 2195064350 DIMSDALE SPORTS COMPANY Capital Expenditures Budget January, February, and March 2020 Equipment purchases Land purchase Total January February March Total 33600 91200 26400 151200 o 160000 160000 33600 91200 186400 311200

Calculation of Cash receipts from customers: January February March Salesin units 7500 9500 10750 Selling price per unit 57 57 57 Total budgeted sales 427500 541500 612750 Cash sales 20% 85500 108300 122550 Sales on credit 80% 342000 433200 490200 ----------------Collected in March 31 Total January February March Receivable Accounts Receivable - January 1 520000 120000 400000 Credit sales from: January 342000 208620 133380 February 433200 264252 168948 March 490200 490200 Total collection of receivables 120000 608620 397632 659148| Total cash receipts from customers current month's cash sales Collections of receivables Total cash receipts January February March 85500 108300 122550 120000 608620 397632 205500 716920520182

Calculation of payments for merchandise: Desired ending inventory (units) Budgeted sales in units Total units required Beginning inventory (units) Number of units to be purchased Cost per unit Total cost of purchases January February March 1900 2150 2000 7500 9500 10750 9400 11650 12750 5250 1900 2150 4150 9750 10600 20 20 83000 195000 212000 ---------Paid in--------- March 31 Total January February March Payable 375000 65000 310000 Accounts Payable - January 1 Merchandise purchasesin: January February March Total cash paid for merchandise 16600 66400 39000 156000 83000 195000) 212000 L 212000 368000 65000 326600 105400

DIMSDALE SPORTS CO. Cash Budget January, February, and March 2020 January February March Beginning cash balance 3650024280 193600 Cash receipts from customers 205500 716920 520182 Total cash available 242000 741200 713782 Cash disbursements: Payments for merchandise 65000 326600 105400 Purchase of land o 160000 Purchases of equipment 33600 91200 26400 General & administrative salaries 12000 12000 12000 Maintenance expense 2000 2000 2000 Sales commissions | 85500 108300 122550 Sales salaries 7500 7500 7500 Interest on bank loan (12000*1%) 1201 0 Taxes payable 0 89000 Total cash disbursements 205720 547600 524850 Preliminary cash balance 36280 193600 188932 Additional loan (loan repayment) - 12000 ol Ending cash balance 24280 193600 188932 Loan balance Loan balance - Beginning of month Additional loan (loan repayment) Loan balance - End of month January February March 12000 - 12000 0 0 0

1581750 555000 1026750 DI MSDALE SPORTS CO. Budgeted Income Statement For Three Months Ended March 31, 2020 Sales Cost of goods sold (27750 units@ $20) Gross profit Operating expenses Sales commissions 316350 Sales salaries 22500 General administrative salaries 36000 Maintenance expense 6000 Depreciation expense 22350 Interest expense 120 Total Operating expense Income before taxes Income taxes (39%) Net income 403320 623430 243138 380292

DIMSDALE SPORTS CO. Budgeted Balance Sheet March 31, 2020 ASSETS Cash 188932 Accounts receivable 659148 Inventory=2000*30 40000 Total current assets 888080 Land 160000 Equipment 763200 Less accumulated depreciation=76500+2310098850 Equipment.net 664350 Total assets 1712430 368000 LIABILITIES AND EQUITY Accounts payable Bank loan payable Taxes payable (due 4/15/2020) Total liabilities 243138 611138 474500 626792 Common stock Retained earnings =246500+380292 Total stockholders' equity Total liabilities and equity 1101292 1712430