Problem 7-8AA Merchandising: Preparation of a complete master budget LO P4 Near the end of 2017, the management of Dimsdale Sports Co., a merchandising company. prepared the following estimated balance sheet for December 31, 2017 DIMSDALE SPORTS COMPANY Estimated Balance Sheet December 31, 2817 Assets Cash Accounts receivable Inventory Total current assets Equipment Less: accumulated depreciation $ 35,58e 157,580 $713,9e8 612,998 76,58e Equipment, net Total assets 535,580 $1,248,5e8 Liabilities and Equity Accounts payable Bank loan payable Taxes payable (due 3/15/2818) Total liabilities Common stock Retained earnings Total stockholders' equity $35e,ee 16,998 $456,9e8 474,59e 318,0ee 792,58e $1,248,508 Total liabilities and equity To prepare a master budget for January, February, and March of 2018, management gathers the following Information. a. The company's single product is purchased for $30 per unlt and resold for $54 per unit. The expected Inventory level of 5,250 units on December 31, 2017, 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 unlts; February, 9,500 units; March, 11,250 units, and Apr, 10,500 units. b. Cash sales and credit sales represent 20% and 80%, respectively, of total sales. Of the credit sales, 59% is collected in the first month after the month of sale and 41% in the second month after the month of sale. For the December 31, 2017, accounts receivable balance, $130,000 Is collected In January and the remalning $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, 2017, accounts payable balance, $75,000 is pald in January and the remaining $275,000 is pald In February d. Sales commissions equal to 20% of sales are paid each month. Sales salaries (excluding commissions) are $96,000 per year. e. General and administrative salarles are $144,000 per year. Malntenance expense equals $1,900 per month and is pald In cash. f. Equipment reported In the December 31, 2017, balance sheet was purchased In January 2017. It is belng depreclated over elght years under the straight-line method with no salvage value. The following amounts for new equipment purchases are planned In the coming quarter: January, $33,600; February, $91,200; and March, $19,200. This equlpment will be depreclated under the stralght lIne method over elght 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 $170,000, which will be pald 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 pald 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 malntaln a minimum ending cash balance of $18,840 at the end of each month. 1. The income tax rate for the company is 41%. Income taxes on the first quarter's income will not be paid until April 15