Solution-Preparation of a complete master budget

Preparation of a complete master budget

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Reference no: EM131156877

Preparation of a complete master budget

[The following information applies to the questions displayed below.]
Near the end of 2015, the management of Nygaard Sports Co., a merchandising company, prepared the following estimated balance sheet for December 31, 2015.

Estimated Balance Sheet December 31, 2015
Assets			Liabilities and Equity
Cash		$36,000	Accounts payable	$365,000
Accounts receivable		520,000	Bank loan payable	15,000
Inventory		135,000	Taxes payable (due 3/15/2012)	92,000
Total current assets		691,000	Total liabilities		$472,000
Equipment	$542,000		Common stock	472,000
Less accumulated depreciation	67,750	474,250	Retained earnings	221,250
			Total stockholders' equity		693,250
Total assets		$1,165,250	Total liabilities and equity		$1,165,250

To prepare a master budget for January, February, and March of 2016, management gathers the following information.

a. Nygaard Sports' single product is purchased for $30 per unit and resold for $56 per unit. The expected inventory level of 4,500 units on December 31, 2015, is more than management's desired level for 2016, which is 20% of the next month's expected sales (in units). Expected sales are: January, 7,500 units; February, 9,000 units; March, 10,750 units; and April, 11,000 units.

b. Cash sales and credit sales represent 25% and 75%, 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, 2015, 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, 2015, 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 $78,000 per year.

e. General and administrative salaries are $132,000 per year. Maintenance expense equals $2,100 per month and is paid in cash.

f. Equipment reported in the December 31, 2015, balance sheet was purchased in January 2015. 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, $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 $175,000, which will be paid with cash on the last day of the month.

h. Nygaard 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 $30,250 in each month.

i. The income tax rate for the company is 39%. Income taxes on the first quarter's income will not be paid until April 15.

Prepare a master budget for each of the first three months of 2016; include the following component budgets (show supporting calculations as needed, and round amounts to the nearest dollar): (Round your answers to the nearest dollar amount. Amounts in parentheses do not require a minus sign in front of them. Omit the "tiny_mce_markerquot; & "%" signs in your response. )

Monthly sales budgets (showing both budgeted unit sales and dollar sales).

Sales Budgets January, February, and March 2016
	Budgeted Units	Budgeted Unit Price	Budgeted Total Dollars
January 2012		$	$
February 2012
March 2012
Total for the first quarter			$

Monthly merchandise purchases budgets.

Merchandise Purchases Budgets January, February, and March 2016
	January	February	March	Total
Next month's budgeted sales
Ratio of inventory to future sales	%	%	%


Required available merchandise
	()	()	()
Units to be purchased
Budgeted cost per unit	$	$	$	$
	$	$	$	$

Monthly selling expense budgets

Selling Expense Budgets January, February, and March 2016
	January	February	March	Total
	$	$	$
	%	%	%
				$

Total selling expenses	$	$	$	$

Monthly general and administrative expense budgets

General and Administrative Expense Budgets January, February, and March 2016
	January	February	March	Total
Salaries	$	$	$	$
Maintenance
Depreciation
Total expenses	$	$	$	$

Monthly capital expenditures budgets.

Capital Expenditures Budgets January, February, and March 2016
	January	February	March
Equipment purchases	$	$	$
Land purchase
Total	$	$	$

Cash Budgets January, February, and March 2016
	January	February	March
Beginning cash balance	$	$	$

Total cash available
Cash disbursements

Sales commissions
Sales salaries
General & administrative salaries

Interest
Taxes payable
Purchases of equipment
Purchase of land
Total cash disbursements
Preliminary cash balance
	()	()
Ending cash balance	$	$	$
Loan balance, end of month	$	$	$

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

Budgeted Income Statement For Three Months Ended March 31, 2016
		$
Cost of goods sold

Operating expenses
	$





Income before taxes
Income taxes
		$

Budgeted balance sheet as of March 31, 2016. (Round your answers to the nearest dollar amount. Leave no cells blank - be certain to enter "0" wherever required. Be sure to list the assets in order of their liquidity. Omit the "tiny_mce_markerquot; sign in your response.)

Budgeted Balance Sheet March 31, 2016
Assets			Liabilities
		$			$


Total Current Assets			Total Liabilities
				$
Equipment	$
Less accum. Depreciation			Total stockholders' equity
Total assets		$	Total Liabilities & Equity		$

Reference no: EM131156877

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Preparation of a complete master budget

Reference no: EM131156877

Reference no: EM131156877

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