Problem 7-5A Preparation of a complete master budget L.O. C2, P1, P2 [The following information applies to the questions displayed below.] Near the end of 2011, the management of Simid Sports Co.,

Problem 7-5A Preparation of a complete master budget L.O. C2, P1, P2

[The following information applies to the questions displayed below.]

Near the end of 2011, the management of Simid Sports Co., a merchandising company, prepared the following estimated balance sheet for December 31, 2011.

SIMID SPORTS COMPANY

Estimated Balance Sheet

December 31, 2011

Assets

Cash $ 36,000

Accounts receivable 520,000

Inventory 165,000

Total current assets 721,000

Equipment $ 542,000

Less accumulated depreciation 67,750 474,250

Total assets $ 1,195,250

Liabilities and Equity

Accounts payable $ 340,000

Bank loan payable 15,000

Taxes payable (due 3/15/2012) 88,000

Total liabilities $ 443,000

Common stock 472,500

Retained earnings 279,750

Total stockholders’ equity 752,250

Total liabilities and equity $ 1,195,250

To prepare a master budget for January, February, and March of 2012, management gathers the following information.

a.

Simid Sports’ single product is purchased for $30 per unit and resold for $56 per unit. The expected inventory level of 5,500 units on December 31, 2011, is more than management’s desired level for 2012, which is 20% of the next month’s expected sales (in units). Expected sales are: January, 7,750 units; February, 9,000 units; March, 10,750 units; and April, 10,000 units.

b.

Cash sales and credit sales represent 30% and 70%, respectively, of total sales. Of the credit sales, 68% is collected in the first month after the month of sale and 32% in the second month after the month of sale. For the December 31, 2011, 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, 2011, accounts payable balance, $80,000 is paid in January and the remaining $260,000 is paid in February.

d.

Sales commissions equal to 20% of sales are paid each month. Sales salaries (excluding commissions) are $48,000 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, 2011, balance sheet was purchased in January 2011. 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, $28,000. 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 $150,000, which will be paid with cash on the last day of the month.

h.

Simid 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 $59,350 in each month.

i.

The income tax rate for the company is 32%. 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 2012; include the following component budgets:

references

2.value:

1.00 points

Problem 7-5A Part 1

1.

Monthly sales budgets. (Omit the “$” sign in your response.)

SIMID SPORTS CO.

Sales Budget

January, February, and March 2012

Budgeted

Units Budgeted

Unit Price Budgeted

Total Dollars

January 2012 $ $

February 2012

March 2012

Total for the first quarter $

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3.value:

2.00 points

Problem 7-5A Part 2

2.

Monthly merchandise purchases budgets. (Units to be deducted should be indicated with a minus sign. Omit the “$” & “%” signs in your response.)

SIMID SPORTS CO.

Merchandise Purchases Budget

January, February, and March 2012

January February March Total

% % %

$ $ $ $

$ $ $ $

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4.value:

2.00 points

Problem 7-5A Part 3

3. Monthly selling expense budgets. (Omit the “$” & “%” signs in your response.)

SIMID SPORTS CO.

Selling Expense Budget

January, February, and March 2012

January February March Total

$ $ $

% % %

$

Total selling expenses $ $ $ $

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5.value:

2.00 points

Problem 7-5A Part 4

4.

Monthly general and administrative expense budgets. (Do not round your intermediate calculations. Round your final answers to the nearest whole dollar. Omit the “$” sign in your response.)

SIMID SPORTS CO.

General and Administrative Expense Budget

January, February, and March 2012

January February March Total

$ $ $ $

Total expenses $ $ $ $

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6.value:

1.00 points

Problem 7-5A Part 5

5. Monthly capital expenditures budgets. (Leave no cells blank – be certain to enter “0” wherever required. Input all amounts as positive values. Omit the “$” sign in your response.)

SIMID SPORTS CO.

Capital Expenditures Budget

January, February, and March 2012

January February March

$ $ $

Total $ $ $

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7.value:

2.00 points

Problem 7-5A Part 6

6.

Monthly cash budgets. (Leave no cells blank – be certain to enter “0” wherever required. Input all amounts as positive values except negative preliminary cash balance and repayment of loan to bank which should be indicated by a minus sign. Round your intermediate calculations and final answers to the nearest dollar amount. Omit the “$” sign in your response.)

SIMID SPORTS CO.

Cash Budget

January, February, and March 2012

January February March

$ $ $

Total cash available

Cash disbursements

Total cash disbursements

$ $ $

$ $ $

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8.value:

2.00 points

Problem 7-5A Part 7

7.

Budgeted income statement for the entire first quarter (not for each month). (Round your answers to the nearest dollar amount. Input all amounts as positive values. Omit the “$” sign in your response.)

SIMID SPORTS CO.

Budgeted Income Statement

For Three Months Ended March 31, 2012

$

Operating expenses

$

$

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Problem 7-5A Preparation of a complete master budget L.O. C2, P1, P2
[The following information applies to the questions displayed below.]
Near the end of 2011, the management of Simid Sports Co., a merchandising company, prepared the
following estimated balance sheet for December 31, 2011.
SIMID SPORTS COMPANY
Estimated Balance Sheet
December 31, 2011
Assets
Cash
$
36,000
Accounts
receivable
520,000
Inventory
165,000
Total
current
assets
721,000
Equipme
nt
$
542,000
Less
accumulat
ed
depreciatio
n
67,750
474,250
Total
assets
$1,195,250
Liabilities
and
Equity
Accounts
payable
$
340,000
Bank
loan
payable
15,000

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Taxes
payable
(due
3/15/2012)
88,000
Total
liabilities
$
443,000
Common
stock
472,500
Retained
earnings
279,750
Total
stockholde
rs’ equity
752,250
Total
liabilities
and equity
$1,195,250
To prepare a master budget for January, February, and March of 2012, management gathers the
following information.
a.
Simid Sports’ single product is purchased for $30 per unit and resold for $56 per unit. The expected
inventory level of 5,500 units on December 31, 2011, is more than management’s desired level for
2012, which is 20% of the next month’s expected sales (in units). Expected sales are: January, 7,750
units; February, 9,000 units; March, 10,750 units; and April, 10,000 units.
b.
Cash sales and credit sales represent 30% and 70%, respectively, of total sales. Of the credit sales,
68% is collected in the first month after the month of sale and 32% in the second month after the
month of sale. For the December 31, 2011, 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, 2011, accounts
payable balance, $80,000 is paid in January and the remaining $260,000 is paid in February.
d.
Sales commissions equal to 20% of sales are paid each month. Sales salaries (excluding
commissions) are $48,000 per year.

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