The Gridley Tire Company manufactures racing tires for bicycles. Gridley sells tires for $70 each. Gridley is planning for the next year by developing a master budget by quarters. Gridley's balance sheet for December 31, 2018,follows:

Gridley Tire Company Balance Sheet December 31, 2018 Assets Current Assets: $ Cash 74,000 22,000 Accounts Receivable Raw Materials Inventory 11,200 24,500 Finished Goods Inventory Total Current Assets 131,700 Property, Plant, and Equipment: Equipment 142,000 (106,000) 36,000 Less: Accumulated Depreciation 167,700 Total Assets Liabilities Current Liabilities: Accounts Payable 9,000 Stockholders' Equity Common Stock, no par $ 110,000 48,700 Retained Earnings 158,700 Total Stockholders' Equity $ 167,700 Total Liabilities and Stockholders' Equity Budgeted sales are 1,400 tires for the first quarter and expected to increase by 50 tires per quarter. Cash a. sales are expected to be 40% of total sales, with the remaining 60% of sales on account. b. Finished Goods Inventory on December 31, 2018 consists of 700 tires at $35 each Desired ending Finished Goods Inventory is 40% of the next quarter's sales; first quarter sales for 2020 are expected be 1,600 tires. FIFO inventory costing method is used C. d. Raw Materials Inventory on December 31, 2018, consists of 1,400 pounds of rubber compound used to manufacture the tires Direct materials requirements are 2 pounds of a rubber compound per tire. The cost of the compound is $8.00 per pound. e. f. Desired ending Raw Materials Inventory is 30% of the next quarter's direct materials needed for production; desired ending inventory for December 31, 2019 is 1,400 pounds; indirect materials are insignificant and not considered for budgeting purposes. g. Each tire requires 0.30 hours of direct labor; direct labor costs average $8 per hour. h. Variable manufacturing overhead is $5 per tire. Fixed manufacturing overhead includes $2,500 per quarter in depreciation and $2,464 per quarter for other costs, such as utilities, insurance, and property taxes. Fixed selling and administrative expenses include $9,500 per quarter for salaries; $1,500 per quarter for j. rent; $750 per quarter for insurance; and $500 per quarter for depreciation. k. Variable selling and administrative expenses include supplies at 1% of sales. Capital expenditures include $40,000 for new manufacturing equipment, to be purchased and paid in the first quarter m. Cash receipts for sales on account are 60% in the quarter of the sale and 40% in the quarter following the sale; December 31, 2018, Accounts Receivable is received in the first quarter of 2019; uncollectible accounts are considered insignificant and not considered for budgeting purposes. n. Direct materials purchases are paid 80% in the quarter purchased and 20% in the following quarter; December 31, 2018, Accounts Payable is paid in the first quarter of 2019. Direct labor, manufacturing overhead, and selling and administrative costs are paid in the quarter incurred. O. p. Income tax expense is projected at $4,000 per quarter and is paid in the quarter incurred. q. Gridley desires to maintain a minimum cash balance of $70,000 and borrows from the local bank as needed in increments of $1,000 at the beginning of the quarter; principal repayments are made at the beginning of the quarter when excess funds are available and in increments of $1,000; interest is 8% p year and paid at the beginning of the quarter based on the amount outstanding from the previous quarter Gridley Tire Company Balance Sheet December 31, 2018 Assets Current Assets: $ Cash 74,000 22,000 Accounts Receivable Raw Materials Inventory 11,200 24,500 Finished Goods Inventory Total Current Assets 131,700 Property, Plant, and Equipment: Equipment 142,000 (106,000) 36,000 Less: Accumulated Depreciation 167,700 Total Assets Liabilities Current Liabilities: Accounts Payable 9,000 Stockholders' Equity Common Stock, no par $ 110,000 48,700 Retained Earnings 158,700 Total Stockholders' Equity $ 167,700 Total Liabilities and Stockholders' Equity Budgeted sales are 1,400 tires for the first quarter and expected to increase by 50 tires per quarter. Cash a. sales are expected to be 40% of total sales, with the remaining 60% of sales on account. b. Finished Goods Inventory on December 31, 2018 consists of 700 tires at $35 each Desired ending Finished Goods Inventory is 40% of the next quarter's sales; first quarter sales for 2020 are expected be 1,600 tires. FIFO inventory costing method is used C. d. Raw Materials Inventory on December 31, 2018, consists of 1,400 pounds of rubber compound used to manufacture the tires Direct materials requirements are 2 pounds of a rubber compound per tire. The cost of the compound is $8.00 per pound. e. f. Desired ending Raw Materials Inventory is 30% of the next quarter's direct materials needed for production; desired ending inventory for December 31, 2019 is 1,400 pounds; indirect materials are insignificant and not considered for budgeting purposes. g. Each tire requires 0.30 hours of direct labor; direct labor costs average $8 per hour. h. Variable manufacturing overhead is $5 per tire. Fixed manufacturing overhead includes $2,500 per quarter in depreciation and $2,464 per quarter for other costs, such as utilities, insurance, and property taxes. Fixed selling and administrative expenses include $9,500 per quarter for salaries; $1,500 per quarter for j. rent; $750 per quarter for insurance; and $500 per quarter for depreciation. k. Variable selling and administrative expenses include supplies at 1% of sales. Capital expenditures include $40,000 for new manufacturing equipment, to be purchased and paid in the first quarter m. Cash receipts for sales on account are 60% in the quarter of the sale and 40% in the quarter following the sale; December 31, 2018, Accounts Receivable is received in the first quarter of 2019; uncollectible accounts are considered insignificant and not considered for budgeting purposes. n. Direct materials purchases are paid 80% in the quarter purchased and 20% in the following quarter; December 31, 2018, Accounts Payable is paid in the first quarter of 2019. Direct labor, manufacturing overhead, and selling and administrative costs are paid in the quarter incurred. O. p. Income tax expense is projected at $4,000 per quarter and is paid in the quarter incurred. q. Gridley desires to maintain a minimum cash balance of $70,000 and borrows from the local bank as needed in increments of $1,000 at the beginning of the quarter; principal repayments are made at the beginning of the quarter when excess funds are available and in increments of $1,000; interest is 8% p year and paid at the beginning of the quarter based on the amount outstanding from the previous quarter