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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
Near the end of 2013, the management of Dimsdale Sports Co., a merchandising company, prepared the following estimated balance sheet for December 31, 2013.
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| DIMSDALE SPORTS COMPANY Estimated Balance Sheet December 31, 2013 |
|||||
| Assets | Â | Â | Â | Â | Â |
| Cash | $ | 35,500 | Â | Â | Â |
| Accounts receivable | Â | 520,000 | Â | Â | Â |
| Inventory | Â | 142,500 | Â | Â | Â |
| Â | Â | Â | Â | ||
| Total current assets | Â | Â | Â | Â | 698,000 |
| Equipment | $ | 540,000 | Â | Â | Â |
| Less accumulated depreciation | Â | 67,500 | Â | Â | Â |
| Â | Â | Â | Â | ||
| Equipment, net | Â | Â | Â | Â | 472,500 |
| Â | Â | Â | Â | ||
| Total assets | Â | Â | Â | $ | 1,170,500 |
| Â | Â | Â | Â | ||
| Liabilities and Equity | Â | Â | Â | Â | Â |
| Accounts payable | $ | 360,000 | Â | Â | Â |
| Bank loan payable | Â | 16,000 | Â | Â | Â |
| Taxes payable (due 3/15/2014) | Â | 89,000 | Â | Â | Â |
| Â | Â | Â | Â | ||
| Total liabilities | Â | Â | Â | $ | 465,000 |
| Common stock | Â | 473,500 | Â | Â | Â |
| Retained earnings | Â | 232,000 | Â | Â | Â |
| Â | Â | Â | Â | ||
| Total stockholders’ equity |  |  |  |  | 705,500 |
| Â | Â | Â | Â | ||
| Total liabilities and equity | Â | Â | Â | $ | 1,170,500 |
| Â | Â | Â | Â | ||
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|
To prepare a master budget for January, February, and March of 2014, management gathers the following information. |
| a. |
Dimsdale Sports’ single product is purchased for $30 per unit and resold for $52 per unit. The expected inventory level of 4,750 units on December 31, 2013, is more than management’s desired level for 2014, which is 20% of the next month’s expected sales (in units). Expected sales are: January, 6,750 units; February, 9,500 units; March, 11,250 units; and April, 9,000 units. |
| b. |
Cash sales and credit sales represent 30% and 70%, respectively, of total sales. Of the credit sales, 65% is collected in the first month after the month of sale and 35% 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 $280,000 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 $156,000 per year. Maintenance expense equals $1,900 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, $37,000; February, $95,000; and March, $29,500. 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. |
| g. |
The company plans to acquire land at the end of March at a cost of $175,000, 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 $41,040 in each month. |
| i. |
The income tax rate for the company is 35%. Income taxes on the first quarter’s income will not be paid until April 15. |
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| Required: |
|
Prepare a master budget for each of the first three months of 2014; include the following component budgets: |
rev: 04_30_2014_QC_49073, 07_19_2014_QC_51562
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