BMAL530 Assignment: Homework 7 FALL 2014

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

Aztec
Company sells its product for $160 per unit. Its actual and projected sales
follow.

Units

Dollars

April
(actual)

7,000

$1,120,000

May
(actual)

3,200

512,000

June
(budgeted)

5,500

880,000

July
(budgeted)

6,000

960,000

August
(budgeted)

4,200

672,000

All
sales are on credit. Recent experience shows that 26% of credit sales is
collected in the month of the sale, 44% in the month after the sale, 24% in
the second month after the sale, and 6% proves to be uncollectible. The
product’s purchase price is $110 per unit. All purchases are payable within
15 days. Thus, 60% of purchases made in a month is paid in that month and the
other 40% is paid in the next month. The company has a policy to maintain an
ending monthly inventory of 20% of the next month’s unit sales plus a safety
stock of 50 units. The April 30 and May 31 actual inventory levels are
consistent with this policy. Selling and administrative expenses for the year
are $1,668,000 and are paid evenly throughout the year in cash. The company’s
minimum cash balance at month-end is $130,000. This minimum is maintained, if
necessary, by borrowing cash from the bank. If the balance exceeds $130,000,
the company repays as much of the loan as it can without going below the
minimum. This type of loan carries an annual 13% interest rate. On May 31,
the loan balance is $42,000, and the company’s cash balance is $130,000.(Round final answers to the nearest whole dollar.)

rev: 11_19_2013_QC_40413, 10_21_2014_QC_56990

1.
award:
2.30 out of
2.30 points

Required:

1.

Prepare
a table that shows the computation of cash collections of its credit sales
(accounts receivable) in each of the months of June and July.

2.
award:
2.30 out of
2.30 points

2.

Prepare
a table that shows the computation of budgeted ending inventories (in units)
for April, May, June, and July.

3.
award:
2.30 out of
2.30 points

3.

Prepare
the merchandise purchases budget for May, June, and July. Report calculations
in units and then show the dollar amount of purchases for each month.

.
award:
2.30 out of
2.30 points

4.

Prepare
a table showing the computation of cash payments on product purchases for
June and July.

5.
award:
2.30 out of
2.30 points

5.

Prepare
a cash budget for June and July, including any loan activity and interest
expense. Compute the loan balance at the end of each month. (Do not round intermediate calculations.)

The following information applies to the questions displayed 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

$

35,500

Accounts receivable

520,000

Inventory

165,000

Total current assets

720,500

Equipment

$

539,000

Less accumulated depreciation

67,375

Equipment, net

471,625

Total assets

$

1,192,125

Liabilities and Equity

Accounts payable

$

365,000

Bank loan payable

16,000

Taxes payable (due 3/15/2014)

90,000

Total liabilities

$

471,000

Common stock

474,000

Retained earnings

247,125

Total stockholders’ equity

721,125

Total liabilities and equity

$

1,192,125

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 $54 per unit. The expected inventory level of 5,500 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, 7,000 units; February, 8,500 units; March, 11,250 units; and April,
10,500 units.

b.

Cash sales and credit sales represent 25% and 75%, respectively, of
total sales. Of the credit sales, 63% is collected in the first month after
the month of sale and 37% in the second month after the month of sale. For
the December 31, 2013, accounts receivable balance, $120,000 is collected in
January and the remaining $400,000 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 $285,000 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 $144,000 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, $37,000;
February, $94,000; and March, $29,000. 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
$140,000, 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 $19,740 in each
month.

i.

The income tax rate for the company is 37%. 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 2014;
include the following component budgets:

rev: 04_30_2014_QC_49073, 07_19_2014_QC_51562
6.
award:
2.30 out of
2.30 points

1.

Monthly
sales budgets.

7.
award:
2.30 out of
2.30 points

2.

Monthly
merchandise purchases budgets.

8.
award:
2.30 out of
2.30 points

3.

Monthly
selling expense budgets.

9.
award:
2.30 out of
2.30 points

4.

Monthly
general and administrative expense budgets.

10.
award:
2.30 out of
2.30 points

5.

Monthly
capital expenditures budgets.

11.
award:
2.30 out of
2.30 points

6.

Monthly
cash budgets.

12.
award:
2.30 out of
2.30 points

7.

Budgeted
income statement for the entire first quarter (not for each month).

13.
award:
2.40 out of
2.40 points

8.

Budgeted
balance sheet as of March 31, 2014.