Glow, Inc. is interested in purchasing some new manufacturing equipment right after the beginning of the new year. They would like to finance the new equipment with cash and marketable securities, but if necessary they can get a short-term loan from a local bank. You have been engaged to prepare a master budget for Glow, Inc. for the first quarter of 2016. Glow, Inc. is a small, rapidly growing manufacturer of lighting equipment. The companys main product line is table lamps. The marketing manager has recently completed a sales forecast. She believes the companys sales during the first quarter of 2016 will increase by 15 percent each month over the previous months sales. Then sales are expected to remain constant for several months. Glow Inc.s projected balance sheet as of December 31, 2015 is as follows:

Cash $60,000

Accounts receivable 312,000

Marketable securities 30,000

Inventory 261,625

Buildings and equipment (net of accumulated depreciation) 1,298,519

Total assets $1,962,144

Accounts payable $366,844

Bond interest payable 12,500

Property taxes payable 4,800

Bonds payable (10%; due in 2020) 600,000

Common stock 750,000

Retained earnings 228,000

Total liabilities and stockholders' equity $1,962,144

The controller is now preparing a budget for the first quarter of 2016. In the process, the following information has been accumulated:

1) Projected sales for December 2015 are $650,000. Credit sales are typically 60% of total sales. Glow, Inc.s credit experience indicates that 20% of credit sales are collected during the month of sale, and the remainder are collected during the following month.

2) Glow, Inc.s cost of goods sold generally runs at 70% of sales. Inventory is purchased on account and 25% of each months purchases are paid during the month of purchase. The remainder is paid during the following month. In order to have adequate stocks of inventory on hand, the company attempts to have inventory on hand at the end of each month equal to half of the next months projected cost of goods sold.

3) The controller has estimated that Glow Inc.s other monthly expenses will be as follows:

Sales salaries $20,000

Advertising and promotion 25,000

Administrative salaries 35,000

Depreciation 15,000

Interest on bonds 2,500

Property taxes 1,200

In addition, sales commissions run at the rate of 3 percent of sales and are paid in the same month as the sale.

4) The company president has indicated that the company should invest $275,000 in state of the art manufacturing equipment just after the new year begins. This equipment purchase will be financed primarily from the companys cash and marketable securities. However, the president believes the company needs to keep a minimum cash balance of $50,000. If necessary, the remainder of the equipment purchase will be financed using short-term credit from a local bank. The minimum period for such a loan is three months. The current short-term interest rates are 8 percent per year and are expected to remain at this rate through the time the equipment is purchased. If a loan is necessary, the president has decided it should be paid off by the end of the first quarter if possible.

5) Glow, Inc.s board of directors has indicated an intention to declare and pay dividends of $100,000 on the last day of each quarter.

6) The interest on any short-term borrowing will be paid when the loan is repaid. Interest on Glow, Inc.s bonds is paid semiannually on January 31 and July 31 for the preceding six-month period.

7) Property taxes are paid semiannually on February 28 and August 31 for the preceding six-month period.

Required: Prepare Glow, Inc.s master budget for the first quarter of 2016 by completing the following schedules and statements. Round all answers to the nearest dollar (do not include cents).

1.)

Sales budget:

2015

2016

Decemeber

January

February

March

1st Quarter

Total sales

Cash sales

Sale on account

2.)

Cash receipts budget:

2016

January

February

March

1st Quarter

Cash sales

Cash collections from credit sales made

During current month

Cash collections from credit sales made

During preceding month

Total cash receipts

3.)

Purchse budget:

2015

2016

Decemeber

January

February

March

1st Quarter

Budgeted cost of goods sold

Add: Desired ending

Inventory

Total goods needed

Less: Expected beginning

Inventory

Purchases

4.)

Cash disbursements budget:

2016

January

February

March

1st Quarter

Inventory purchses:

Cash payments for puschases during the current month

Cash payments for puschases during the preceding month

Total cash payments for inventory purchases

Other expenses:

Sales salaries

Advertising and promotion

Administrative salaries

Interest on bonds

Property taxes

Sales commissions

Total cash payments for other expenses

Total cash disbursements

Complete the first three lines of the summary budget. Then do the analysis of short-term financing needs in requirement (6). Use this answer to help complete requirement (5)

5.)

Summary cash budget:

20x1

Cash receipts (sch 2)

January

February

March

1st Quarter

Less: Cash disbursements (sch 4)

Change in cash balance during period due to operations

Sale of marketable securities (1/2/16)

Proceeds from bank loan (1/2/16)

Purchase of equipment

Repayment of bank loan (3/31/16)

Interest on bank loan

Payment of dividends

Change in cash balance during first quarter

XXXXX

XXXXX

XXXXX

Cash balance, 1/1/16

XXXXX

XXXXX

XXXXX

Cash balance, 3/31/16

XXXXX

XXXXX

XXXXX

6.) Analysis of short-term financing needs:

Projected cash balance as of December 31, 2015

$

Less: minimum cash balance

Cash available for equipment purchases

$

Projected proceeds from sale of marketable securities

Cash available

$

Less: Cost of investment in equipment

Required short-term borrowing

$

7) Prepare Glow, Inc.s budgeted income statement for the first quarter of 2016. (Ignore income taxes.)

8) Prepare Glow, Inc.s budgeted statement of retained earnings for the first quarter of 2016.

9) EXTRA CREDIT (5 points): Prepare Glow, Inc.s budgeted balance sheet as of March 31, 2016. (Hint: On March 31, 2016, Bond Interest Payable is $5,000 and Property Taxes Payable is $1,200.)

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