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 $30,250 in each month.
i. / The income tax rate for the company is 39%. Income taxes on the first quarter’s income will not be paid until April 15.
Prepare a master budget for each of the first three months of 2016; include the following component budgets (show supporting calculations as needed, and round amounts to the nearest dollar): (Round your answers to the nearest dollar amount. Amounts in parentheses do not require a minus sign in front of them. Omit the "$" & "%" 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 "$" 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 / $