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 |
|
|
|
$ |
35,500 |
| Accounts receivable |
|
|
|
|
520,000 |
| Inventory |
|
|
|
|
90,000 |
| |
|
|
|
|
|
| Total current assets |
|
|
|
|
645,500 |
| Equipment |
$ |
539,000 |
|
|
|
| Less accumulated depreciation |
|
67,375 |
|
|
471,625 |
| |
|
|
|
|
|
| Total assets |
|
|
|
$ |
1,117,125 |
| |
|
|
|
|
|
| Liabilities and Equity |
|
|
|
|
|
| Accounts payable |
$ |
355,000 |
|
|
|
| Bank loan payable |
|
14,000 |
|
|
|
| Taxes payable (due 3/15/2012) |
|
90,000 |
|
|
|
| |
|
|
|
|
|
| Total liabilities |
|
|
|
$ |
459,000 |
| Common stock |
|
471,000 |
|
|
|
| Retained earnings |
|
187,125 |
|
|
|
| |
|
|
|
|
|
| Total stockholders%u2019 equity |
|
|
|
|
658,125 |
| |
|
|
|
|
|
| Total liabilities and equity |
|
|
|
$ |
1,117,125 |
| |
|
|
|
|
|
|
|
To prepare a master budget for January, February, and March of 2012, management gathers the following information.
|
| a. |
Simid Sports%u2019 single product is purchased for $20 per unit and resold for $58 per unit. The expected inventory level of 4,500 units on December 31, 2011, is more than management%u2019s desired level for 2012, which is 20% of the next month%u2019s expected sales (in units). Expected sales are: January, 7,250 units; February, 9,250 units; March, 10,500 units; and April, 9,500 units.
|
| b. |
Cash sales and credit sales represent 30% and 70%, respectively, of total sales. Of the credit sales, 66% is collected in the first month after the month of sale and 34% in the second month after the month of sale. For the December 31, 2011, 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, 2011, accounts payable balance, $85,000 is paid in January and the remaining $270,000 is paid in February.
|
| d. |
Sales commissions equal to 20% of sales are paid each month. Sales salaries (excluding commissions) are $60,000 per year.
|
| e. |
General and administrative salaries are $144,000 per year. Maintenance expense equals $1,800 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, $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%u2019s 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 $170,000, 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 $47,610 in each month.
|
| i. |
The income tax rate for the company is 34%. Income taxes on the first quarter%u2019s income will not be paid until April 15.
|