Problem 07-8AA Merchandising: Preparation of a complete master budget LO P4 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 December 31, 2019 Assets Cash $ 35,000 Accounts receivable 520,000 Inventory 90.000 Total current assets $ 645,000 Equipment 636,000 Less: Accumulated depreciation 79.500 Equipment, net 556,500 Total ansats $1,201,500 Liabilities and Equity Accounts payable $365,000 Bank loan payable 11,000 Taxes payable (due 3/15/2020 92,000 Total 1labilities $ 460,000 Common stock 470, 500 Hetained earnings 263,000 Total stockholders' equity 733,500 Total liabilities and equity $1,201,500 To prepare a master budget for January, February, and March of 2020, management gathers the following information a. The company's single product is purchased for $20 per unit and resold for $56 per unit. The expected Inventory level of 4,500 units on December 21 2019 more than management's desired level which is 20% of the next month's expected sales in unit) To prepare a master budget for January, February, and March of 2020, management gathers the following information a. The company's single product is purchased for $20 per unit and resold for $56 per unit. The expected inventory level of 4,500 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 7.000 units: February, 9,000 units; March 11,500 units; and April 10,000 units. b. 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, $125,000 is collected in January 2020 and the remaining $395,000 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, $60,000 is paid in January 2020 and the remaining $305,000 is paid in February 2020. d. Sales commissions equal to 20% of sales are paid each month. Sales salaries (excluding commissions) are $78,000 per year. e. General and administrative salaries are $144,000 per year. Maintenance expense equals $1,900 per month and is paid in cash. f. Equipment reported in the December 31, 2019, balance sheet was purchased in January 2019. It is being deprecated 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, $38,400; February $96,000, and March, $26,400. 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 9. The company plans to buy 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. The company has a working arrangement with its bank to obtain additional pans as needed. The interest rate is 12% per year and interest is paid at each month-end based on the beginning balance. Partial dr 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 $45,000 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 pold until April 15 Required: Prepare a master budget for each of the first three months of 2020; include the following component budgets. 1. Monthly sales budgets 2. Monthly merchandise purchases budgets 3. Monthly selling expense budgets Required: Prepare a master budget for each of the first three months of 2020; include the following component budgets. 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, Calculation of payments for merchandise: January February March Desired ending inventory (units) Budgeted sales in units Total units required Beginning inventory (units) Number of units to be purchased Cost per unit Total cost of purchases -Paid in- March 31 March Payable Total January February 365,000 $ 60,000 $ 305,000 Accounts Payable - January 1 Merchandise purchases in: January February $ 0 0 March 0 Total cash paid for merchandise S 60,000 $ 305,000 $ 0 $ 0