Problem 07-8AA Merchandising: Preparation of a complete master budget LO P4 ook ences Near the end of 2019, the management of Dimsdale Sports Co, a merchandising company, prepared the following estimated balance sheet for December 31, 2019. DIMSDALE SPORTS COMPANY Estimated Balance Sheet Decenber 31, 2019 Assets Cash $ 35,000 Accounts receivable 520,000 Inventory 150,000 Total current assets $ 706,000 Equipment 600,000 Lesst Accumulated depreciation 75,000 Equipment, net 525,000 Total assets $1,231,000 Liabilities and Equity Accounts payable $365,000 Bank loan payable 12,000 Taxes payable (due 3/15/2820) 92,000 Total Liabilities $ 469,000 Common stock 471,000 Retained earnings 291,000 Total stockholders' equity 762,000 Total Liabilities and equity $1,231,000 To prepare a master budget for January, February, and March of 2020, management gathers the following information, CHECK won 1 To prepare a master budget for January, February, and March of 2020, management gathers the following information. ins woon References a. The company's single product is purchased for $30 per unit and resold for $58 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, 6,750 units: February 8,750 units; March 11,250 units; and April, 9,000 units. b. Cash sales and credit sales represent 20% and 80%, 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, $120,000 is collected in January 2020 and the remaining $400,000 is collected in February 2020. 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, 2019, accounts payable balance. $70,000 is paid in January 2020 and the remaining $295,000 is paid in February 2020, d. Sales commissions equal to 20% of sales are paid each month. Sales salaries (excluding commissions) are $60,000 per year. e. General and administrative salaries are $156,000 per year. Maintenance expense equals $2,000 per month and is paid in cash. 1. 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, $31,200: February, $93,600, and March. $21,600. 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 buy land at the end of March at a cost of $145,000, which will be paid with cash on the last day of the month. h. 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 $18,000 at the end of each month 1. The income tax rate for the company is 39% Income taxes on the first quarter's income will not be paid until April 15 buagerea income statement for the entire first quarter (not ror each month). (Rouna dollar.) DIMSDALE SPORTS CO. Budgeted Income Statement For Three Months Ended March 31, 2020 Sales Cost of goods sold es Gross profit Operating expenses Sales commissions expense Sales salaries expense General administrative salaries Maintenance expense Depreciation expense Interest expense 0 Total operating expenses Income before taxes 0 Income tax expense Net income $ 0