| a. | Simid Sports 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, 2011, is more than managements desired level for 2012, which is 20% of the next months expected sales (in units). Expected sales are: January, 7,250 units; February, 8,750 units; March, 10,500 units; and April, 11,000 units. |
| b. | Cash sales and credit sales represent 25% and 75%, respectively, of total sales. Of the credit sales, 57% is collected in the first month after the month of sale and 43% in the second month after the month of sale. For the December 31, 2011, accounts receivable balance, $130,000 is collected in January and the remaining $390,000 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, $80,000 is paid in January and the remaining $280,000 is paid in February. |
| d. | Sales commissions equal to 20% of sales are paid each month. Sales salaries (excluding commissions) are $66,000 per year. |
| e. | General and administrative salaries are $144,000 per year. Maintenance expense equals $2,000 per month and is paid in cash. |
| f. | Equipment reported in the December 31, 2011, statement of financial position was purchased in January 2011. It is being depreciated over eight years under the straight-line method with no residual value. The following amounts for new equipment purchases are planned in the coming quarter: January, $35,000; February, $96,000; and March, $29,500. This equipment will be depreciated under the straight-line method over eight years with no residual value. A full months 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 $150,000, 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 $36,513 in each month. |
| i. | The income tax rate for the company is 43%. Income tax on the first quarters income will not be paid until April 15. |
