The budgets will be prepared based on the following information: a. Sales on account are budgeted at $15,000 for Month 1, $23,000 for Month 2, and $30,000 for Month 3. Cash sales are 2,000 in Month 1. Company does not expect to have any cash sales in Month 2 and Month 3. b. Sales are collected 70% in the month of the sale, and 30% in the month following the sale. c. Cost of Goods Sold is budgeted at 40% of Sales. d. Monthly selling, general, and administrative expenses are as follows: donations are 10% of sales; advertising is 8% of sales; miscellaneous is 5% of sales; and rent is $4,500 per month. All SG&A expenses are paid in the month they are incurred. e. Since all of the orders are custom made, no inventory is kept on hand at the end of the month. f. Inventory purchases are paid in full in the month following the purchase. g. a company is planning to purchase an equipment in Month 3 for $5,000 in cash. h. They would like to maintain a minimum cash balance of $2,000 at the end of each month. The company has a line of credit agreement with a local bank to borrow up to $20,000. The interest rate on these loans is 1% per month (12% annual). Bobcat will repay on the last day if has enough cash to pay the full balance and maintain an adequate ending cash balance. i. The owner makes a draw of $3,000 every month. (Note: sole proprietors and partnerships take owners draws, while stockholders receive dividends). Based upon the information provided, complete the operating budgets provided in the excel template, and answer the questions in Canvas. When making calculations always round up (for example: 33 7% = 2.31, round up to 3.00). Check Figures: Gross Margin $42,000 Total assets $16,000 Ending Retained Earnings $3,391

1. The company will have cash shortage in Month 3.

A. True

B. False

2. The company will need to borrow money in Month 3.

A. True

B. False

3. How much will the company borrow in Month 3?

A.$2,000

B. The company will not have a projected cash shortage in Month 3, thus it will not borrow money

C. $1,300

D. $609