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Estimated Balance Sheet

December 31,


Assets      Cash$36,000    Accounts receivable 520,000    Inventory 150,000    Total current assets   $706,000 Equipment 576,000    Less: Accumulated depreciation 72,000    Equipment, net    504,000 Total assets   $1,210,000 

Liabilities and Equity      Accounts payable$360,000    Bank loan payable 12,000    Taxes payable (due 3/15/2020) 90,000    Total liabilities   $462,000 Common stock 472,000    Retained earnings 276,000    Total stockholders' equity    748,000 Total liabilities and equity   $1,210,000 

How do I prepare a master budget for January, February, and March of 2020 using the below rules?


  1. The company's single product is purchased for $30 per unit and resold for $57 per unit. The expected inventory level of 5,000 units on December 31, 2019, is more than management's desired level, which is 20% of the next month's expected sales (in units). Expected sales are January, 7,250 units; February, 9,500 units; March, 11,000 units; and April, 10,000 units.
  2. 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, 2019, accounts receivable balance, $130,000 is collected in January 2020 and the remaining $390,000 is collected in February 2020.
  3. 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, 2019, accounts payable balance, $65,000 is paid in January 2020 and the remaining $295,000 is paid in February 2020.
  4. Sales commissions equal to 20% of sales are paid each month. Sales salaries (excluding commissions) are $96,000 per year.
  5. General and administrative salaries are $144,000 per year. Maintenance expense equals $2,000 per month and is paid in cash.
  6. Equipment reported in the December 31, 2019, balance sheet was purchased in January 2019. 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, $36,000; February, $100,800; and March, $19,200. 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.
  7. The company plans to buy land at the end of March at a cost of $180,000, which will be paid with cash on the last day of the month.
  8. The company 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 $47,000 at the end of each month.
  9. The income tax rate for the company is 39%. Income taxes on the first quarter's income will not be paid until April 15.



How do I compute these compnent budgets from the master budget for each of the first three months of 2020?

1. Monthly sales budgets.

2. Monthly merchandise purchases budgets.

3. Monthly selling expense budgets.

4. Monthly general and administrative expense budgets.

5. Monthly capital expenditures budgets.

6. Monthly cash budgets.

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

8. Budgeted balance sheet as of March 31, 2020.


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