Concept explainers
To prepare:
Monthly sales budget
![Check Mark](/static/check-mark.png)
Answer to Problem 8APSA
Solution:
A sales budget is a budget which is used to estimate the expected units of sales in dollars and also helps to determine the estimated earnings during a period.
DIMSDALE SPORTS COMPANY | |||||
Monthly sales budget (in units and sales value) | |||||
| | | | | |
| January | February | March | Quarter | |
Sales in units | 7,000 | 9,000 | 11,000 | 27,000 | |
Selling price per unit | $55 | $55 | $55 | $55 | |
Dollar sales value($) | 385,000 | 495,000 | 605,000 | 1,485,000 |
Explanation of Solution
Dollar sales value for each month is calculated as follows-
Thus, the monthly sales budget has been prepared both in units and sales value.
To prepare:
Merchandise purchases budget
![Check Mark](/static/check-mark.png)
Answer to Problem 8APSA
Solution:
Budgeted purchases: Budgeted purchases are the estimates of purchases of a particular month based on the sales requirement and ending inventory requirement and the budgeted beginning inventory.
DIMSDALE SPORTS COMPANY | |||||
Monthly merchandise purchases budgets | |||||
| | | | | |
| January | February | March | Quarter | |
Budgeted Sales for the month | 7,000 | 9,000 | 11,000 | | |
Ending inventory in units | 1,800 | 2,200 | 2,000 | | |
Total Needs | 8,800 | 11,200 | 13,000 | | |
Less: Beginning inventory | (5,000) | (1,800) | (2,200) | | |
Merchandise purchases in units required | 3,800 | 9,400 | 10,800 | | |
Cost per unit | $30 | $30 | $30 | | |
Dollar value of purchases ($) | 114,000 | 282,000 | 324,000 | 720,000 |
Explanation of Solution
First, ending inventory in units is required to be calculated-
Calculation of ending inventory in units is as under-
Now, Merchandise purchases required is to be calculated-
Given, Expected sales of the month-
- January − 7,000 units
- February − 9,000 units
- March − 11,000 units Ending inventory −
- January − 1,800 units
- February − 2,200 units
- March − 2,000 units Beginning inventory-
- Ending inventory of the previous month shall be beginning inventory of current month.
- January − 5,000 units (given)
- February − 1,800 units
- March − 2,000 units Total requirement for the month of January, February and March-
Dollar Value of purchases is calculated as follows-
Thus, the merchandise purchase budget has been prepared for the months of January, February and March.
To prepare:
Monthly selling expense Budget
![Check Mark](/static/check-mark.png)
Answer to Problem 8APSA
Solution:
DIMSDALE SPORTS COMPANY | |||||
Monthly Selling Expense budgets | |||||
| | | | ||
| January ($) | February ($) | March ($) | ||
Sales commissions | 77,000 | 99,000 | 121,000 | ||
Sales salaries | 5,000 | 5,000 | 5,000 | ||
Selling expenses | 82,000 | 104,000 | 126,000 |
Explanation of Solution
First we need to calculate Sales commissions.
Calculation of sales commission is as under-
Sales salary for each month-
Selling expense for each month is calculated as under-
Thus, the selling expense budget is prepared for the month of January, February and March.
To prepare:
Monthly general and administrative expense Budget
![Check Mark](/static/check-mark.png)
Answer to Problem 8APSA
Solution:
DIMSDALE SPORTS COMPANY | |||||
Monthly general and administrative budgets | |||||
| | | | ||
| January | February | March | ||
6,000 | 7,000 | 7,300 | |||
General and administrative salaries | 12,000 | 12,000 | 12,000 | ||
Maintenance expense | 2,000 | 2,000 | 2,000 | ||
Total general and administrative expenses | 20,000 | 21,000 | 21,300 |
Explanation of Solution
Given: Maintenance Expense = $2,000 per month
General and administrative salaries for each month-
Depreciation expense-
Given,
Beginning balance - $540,000
Purchase of equipment-
- January -$36,000
- February-$96,000
- March-$28,800 January-
February-
March-
Total General and administrative expenses for each month is calculated as under-
Thus, the general and administrative expenses budget is prepared for the month of January, February and March.
To prepare:
Monthly capital expenditures Budget
![Check Mark](/static/check-mark.png)
Answer to Problem 8APSA
Solution:
DIMSDALE SPORTS COMPANY | |||||
Capital Expenditures budget | |||||
| | | | | |
| January | February | March | Quarter | |
Purchase of Equipment | 36,000 | 96,000 | 28,800 | 160,800 | |
Purchase of Land | 0 | 0 | 150,000 | 150,000 | |
Total Capital expenditure | 36,000 | 96,000 | 178,800 | 310,800 |
Explanation of Solution
Given-
- Purchase of Equipment in January = $36,000
- Purchase of Equipment in February = $96,000
- Purchase of Equipment in March = $28,800
- Purchase of Land in March = $150,000
Thus, Capital expenditure budget is prepared.
To prepare:
Monthly
![Check Mark](/static/check-mark.png)
Answer to Problem 8APSA
Solution:
DIMSDALE SPORTS COMPANY | |||||
Monthly cash budgets | |||||
| | | | ||
| January | February | March | ||
Beginning cash balance | 36,000 | 30,100 | 210,300 | ||
Cash receipts: | | | | ||
Cash sales | 96,250 | 123,750 | 151,250 | ||
Collection from - | | | | ||
Beginning | 125,000 | 400,000 | | ||
Credit sales of January | | 173,250 | 115,500 | ||
Credit sales of February | | | 222,750 | ||
Total cash receipts | 221,250 | 697,000 | 489,500 | ||
Total cash available | 257,250 | 727,100 | 699,800 | ||
Less: Cash disbursements- | | | | ||
Merchandise purchases | | | | ||
Beginning accounts payable | 80,000 | 280,000 | | ||
January accounts payable | | 22,800 | 91,200 | ||
February accounts payable | | | 56,400 | ||
Selling expenses (Req.3) | 82,000 | 104,000 | 126,000 | ||
General and administrative expenses excluding depreciation (Req.4) | 14,000 | 14,000 | 14,000 | ||
Capital Expenditure (Req.5) | 36,000 | 96,000 | 178,800 | ||
Interest on bank loan | 150 | | |||
Total cash disbursements | 212,150 | 516,800 | 466,400 | ||
Surplus/ ( deficiency) of cash | 45,100 | 210,300 | 233,400 | ||
Borrowing / ( Repayment) | (15,000) | | |||
Ending cash balance | 30,100 | 210,300 | 233,400 |
Explanation of Solution
Cash sales is calculated as under-
Beginning accounts receivable-
Given-
- January-$125,000
- February-$400,000 Credit Sales-
For the month of February-
For the month of March-
Beginning accounts payable-
Given-
- January-$80,000
- February-$280,000 Calculation of accounts payable is as under-
For the month of February-
For the month of March-
Total cash available is calculated as under-
Surplus of cash-
Thus, Cash budget is prepared.
To prepare:
![Check Mark](/static/check-mark.png)
Answer to Problem 8APSA
Solution:
DIMSDALE SPORTS COMPANY | |||||
Income Statement | |||||
| | | |||
Particulars | Amount ($) | Amount ($) | |||
Sales (Req.1) | | 1,485,000 | |||
Cost of merchandise sold | | 810,000 | |||
Gross Profit | | 675,000 | |||
Operating expenses: | | | |||
Selling expenses (Req.3) | 312,000 | | |||
General and administrative expenses (Req.4) | 62,300 | | |||
Interest on bank loan | 150 | 374,450 | |||
Income before tax | | 300,550 | |||
Tax @ 40% | | 120,220 | |||
Net operating income | | 180,330 |
Explanation of Solution
Gross profit is calculated as under-
Interest Expense-
Income before tax-
Tax Expense-
Net Operating income is calculated as under-
Thus, Income statement is prepared for the quarter.
To prepare:
Budgeted
![Check Mark](/static/check-mark.png)
Answer to Problem 8APSA
Solution:
DIMSDALE SPORTS COMPANY | |||||
Balance sheet as of March 31, 2016 | |||||
| | | |||
Amount ($) | Amount ($) | ||||
Assets | | | |||
Cash | 233,400 | | |||
Accounts receivable | 602,250 | | |||
Inventory | 60,000 | | |||
Total current assets | | 895,650 | |||
Land | | 150,000 | |||
Equipment gross | 610,800 | | |||
(87,800) | | ||||
Equipment net | | 523,000 | |||
Total assets | | 1,568,650 | |||
| | ||||
Accounts payable | 549,600 | | |||
Tax payable | 120,220 | | |||
Current liabilities | | 669,820 | |||
Common stock | | 472,500 | |||
| 426,330 | ||||
Total Stockholder's Equity and Liabilities | 1,568,650 |
Explanation of Solution
Assets
Given,
Land = $150,000 (from Requirement 5)
Cash = $233,400 (from Requirement 6)
Calculation of total current assets is as under-
Accumulated Depreciation-
Equipment-
Calculation of total assets is as under-
Total Stockholder's Equity and Liabilities Given,
Taxes payable = 120,220 (from requirement 7)
Common stock = $472,500
Accounts payable-$549,600
Calculation of Current liabilities is as under-
Retained earnings-
Calculation of Total Stockholder's Equity and Liabilities is as under-
Thus, Budgeted balance sheet is prepared with total of $1,568,650.
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Chapter 22 Solutions
WORKING PAPERS F/ FUND ACCOUNTING
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