Problem 7-8AA Merchandising: Preparation of a complete master budget P4 Dimsdale Sports, a merchandising company, reports the following balance sheet at December 31. Cash Accounts receivable Inventory Assets Equipment $540,000 Less: Accumulated depreciation... 67,500 Total assets DIMSDALE SPORTS COMPANY Balance Sheet December 31 $ 36,000 Liabilities 525,000 150,000 472,500 $1,183,500 Liabilities and Equity Accounts payable Loan payable..... Taxes payable (due March 15) Equity Common stock Retained earnings Total liabilities and equity $360,000 15,000 90,000 $ 465,000 472,500 246,000 718,500 $1,183,500 To prepare a master budget for January, February, and March, use the following information. a. The company's single product is purchased for $30 per unit and resold for $55 per unit. The inventory level of 5,000 units on December 31 is more than management's desired level, Page 274 which is 20% of the next month's budgeted sales units. Budgeted sales are January, 7,000 units; February, 9,000 units; March, 11,000 units; and April, 10,000 units. All sales are on credit. Check (2) Budgeted purchases: Jan., $114,000; Feb., $282,000 (6) Ending cash bal.: Jan., $30,100; Feb., $210,300 (8) Budgeted total assets at March 31, $1,568,650 2. Merchandise purchases budgets. b. Cash receipts from sales are budgeted as follows: January, $221,250; February, $697,000; March, $489,500. c. Cash payments for merchandise purchases are budgeted as follows: January, $80,000; February, $302,800; March, $147,600. d. Sales commissions equal to 20% of sales dollars are paid each month. Sales salaries (excluding commissions) are $5,000 per month. e. General and administrative salaries are $12,000 per month. Maintenance expense equals $2,000 per month and is paid in cash. f. New equipment purchases are budgeted as follows: January, $36,000; February, $96,000; and March, $28,800. Budgeted depreciation expense is January, $6,000; February, $7,000; and March, $7,300. g. The company budgets a land purchase 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 an agreement with its bank to obtain additional loans as needed. The interest rate is 1% per month and interest is paid at each month-end based on the beginning-month balance. Partial or full payments on these loans are made on the last day of the month. The company maintains a minimum ending cash balance of $25,000 at the end of each month. i. The income tax rate for the company is 40%. Income taxes on the first quarter's income will not be paid until April 15. Required Prepare a master budget for the months of January, February, and March that has the following budgets (round amounts to the nearest dollar). 1. Sales budgets.