Facts: The Observer Company is a small, rapidly growing wholesaler of consumer electronic products including small kitchen appliances and power tools. A sales forecast supplied by the Marketing Department predicts that sales during Quarter 1 of 20x2 will increase by 10% each month over the previous month's sales. Then (beginning in April 20x2) sales are expected to remain constant for the next several months. The Company is going to put some new equipment in operation just after the New Year begins. They hope to finance it largely with cash and the sale of marketable securities, but if necessary they can get a short-term loan from the Karch Bank. Observer's Balance Sheet at December 31, 20x1 is as follows Observer Company- Balance Sheet 31-Dec-20x1 Assets Cash Accounts Receivable Marketable securities Invento Building & Equipment (net of accumulated depreciation Total Assets $ 35,000 270,000 15,000 154,000 626,000 1,100,000 Liabilities and Stockholder's Equi Accounts payable Bond interest pavable Property taxes payable Bonds payable (due in 20x6 Common Stock Retained Earnings Total L & SE $ 176,400 12,500 3,600 300,000 500,000 $107,500 $1,100,000 As Assistant Controller for the Observer Company you are now preparinga monthly budget for Quarter 1 of 20x2. In this process, the following information has been accumulated (1) Projected Sales for December 20x1 are $400,000. Credit sales typically are 75% of total sales. Observers credit experience indicates that 10% of credit sales are collected during the month of sale, and the remainder is collected during the following month. (2) Observer's cost of goods sold is normally 70% of sales. Inventory is purchased on account and 40% of each month's purchases are paid during the month of purchase. The remainder is paid during the following month. To have adequate amounts of inventory on hand Observer has a policy that inventory at the end of each month should equal half of the next month's projected cost of goods sold (3) Observer's other monthly expenses are estimated as follows Sales Salaries $21,000 Advertising & promotion $16,000 Administrative salaries $21,000 Depreciation S25,000 (Includes depreciation on new equipment purchased at beginning of Quarter 1) Interest on Bonds $2,500 Property taxes $900 Sales Commissions 1 percent of current month's sales (4) The Company President has indicated that Observer will be investing $125,000 in equipment to be used in the firm's warehouse just after the New Year begins. This equipment purchase will be financed from the company's cash and marketable securities However, the President noted that Observer should keep a minimum cash balance of $25,000. If necessary, the remainder of the equipment purchased will be financed using short-term credit from the Karc Bank. The minimum period for such a loan is 3 months with short- term interest rates being 10% per year. If a loan is needed the President has decided that it should be paid off at the end of the Quarter 1, if possible (5) Observer's Board of Directors has indicated an intention to declare (6) The interest on any short-term borrowing will be paid when the loan is (7)Property taxes are paid semi-annually on February 28 and August 31 and pay cash dividends of S50,000 on the last day of each quarter repaid. Interest on Observer's Bonds is paid semiannually on January 31 and July 31 for the preceding six-month period for t he preceding six-month period