Near the end of 2017, the management of Dimsdale Sports Co., amerchandising company, prepared the following estimated balancesheet for December 31, 2017.

DIMSDALE SPORTS COMPANY Estimated Balance Sheet December 31, 2017
Assets
Cash	$	36,000
Accounts receivable		525,000
Inventory		150,000
Total current assets				$	711,000
Equipment		540,000
Less: accumulateddepreciation		67,500
Equipment, net					472,500
Total assets				$	1,183,500
Liabilities and Equity
Accounts payable	$	360,000
Bank loan payable		15,000
Taxes payable (due3/15/2018)		90,000
Total liabilities				$	465,000
Common stock		472,500
Retained earnings		246,000
Total stockholders’ equity					718,500
Total liabilities andequity				$	1,183,500

To prepare a master budget for January, February, and March of2018, management gathers the following information.

The company’s single product is purchased for $30 per unit andresold for $55 per unit. The expected inventory level of 5,000units on December 31, 2017, is more than management’s desiredlevel, which is 20% of the next month’s expected sales (in units).Expected sales are: January, 7,000 units; February, 9,000 units;March, 11,000 units; and April, 10,000 units.

Cash sales and credit sales represent 25% and 75%, respectively,of total sales. Of the credit sales, 60% is collected in the firstmonth after the month of sale and 40% in the second month after themonth of sale. For the December 31, 2017, accounts receivablebalance, $125,000 is collected in January and the remaining$400,000 is collected in February.

Merchandise purchases are paid for as follows: 20% in the firstmonth after the month of purchase and 80% in the second month afterthe month of purchase. For the December 31, 2017, accounts payablebalance, $80,000 is paid in January and the remaining $280,000 ispaid in February.

Sales commissions equal to 20% of sales are paid each month.Sales salaries (excluding commissions) are $60,000 per year.

General and administrative salaries are $144,000 per year.Maintenance expense equals $2,000 per month and is paid incash.

Equipment reported in the December 31, 2017, balance sheet waspurchased in January 2017. It is being depreciated over eight yearsunder the straight-line method with no salvage value. The followingamounts for new equipment purchases are planned in the comingquarter: January, $36,000; February, $96,000; and March, $28,800.This equipment will be depreciated under the straight-line methodover eight years with no salvage value. A full month’s depreciationis taken for the month in which equipment is purchased.

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 themonth.

The company has a working arrangement with its bank to obtainadditional loans as needed. The interest rate is 12% per year, andinterest is paid at each month-end based on the beginning balance.Partial or full payments on these loans can be made on the last dayof the month. The company has agreed to maintain a minimum endingcash balance of $25,000 at the end of each month.

The income tax rate for the company is 40%. Income taxes on thefirst quarter’s income will not be paid until April 15.

Required:
Prepare a master budget for each of the first three months of 2018;include the following component budgets:

6. Monthly cash budgets.
7. Budgeted income statement for the entire firstquarter (not for each month).
8. Budgeted balance sheet as of March 31,2018.