AudioFile Products Ltd. is a retailer that sells sound systems. The company is planning its cash needs for the month of January, 2018. In the past, AudioFile has had to borrow money during the post-Christmas season to offset a significant decline in sales. The following information has been assembled to assist in preparing a cash flow forecast for January. January 2018 Forecasted Income Statement Sales $200,000 Cost of goods sold 150,000 Gross profit 50,000 Variable selling expenses $10,000 Fixed administrative expenses 20,000 30,000 Forecasted net operating income $ 20,000 (1) Sales are 10% for cash and 90% on credit. (2) Credit sales are collected over a three-month period with 40% collected in the month of sale, 30% in the following month, and 20% in the second month following sale. November 2017 sales totaled $300,000 and December 2017 sales totaled $500,000. (3) 40% of a month’s inventory purchases are paid for in the same month. The remaining 60% are paid in the following month. Accounts payable relate solely to inventory purchases. At December 31, these totaled $400,000. (4) The company maintains its ending inventory levels at 60% of the cost of the merchandise to be sold in the following month. The merchandise inventory at December 31, 2017 was $90,000. February 2018 sales are budgeted at $150,000. Gross profit percentage is expected to remain unchanged. (5) The company pays a $10,000 monthly cash dividend to shareholders. (6) The cash balance at December 31, 2017 was $30,000; the company must maintain a cash balance of at least this amount at the end of each month. (7) The company can borrow on its operating loan in increments of $10,000 at the beginning of each month, up to a total loan balance of $500,000. The interest rate on this loan is 1% per month payable in the month following the loan. There is no operating loan at December 31, 2017.