Helping Hand Corp is interested in purchasing some new material-handling 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 Helping Hand Corp for the first quarter of 20x1. Helping Hand Corp is a small, rapidly growing wholesaler of consumer electronic products. The company’s main product lines are small kitchen appliances and power tools. The marketing manager has recently completed a sales forecast. She believes the company’s sales during the first quarter of 20x1 will increase by 10 percent each month over the previous month’s sales. Then sales are expected to remain constant for several months. Helping Hand Corp’s projected balance sheet as of December 31, 20x0 is as follows:

Cash: $ 70,000

Accounts receivable: 476,000

Marketable securities: 30,000

Inventory: 269,500

Buildings and equipment (net of accumulated depreciation): 1,252,000

Total assets: $ 2,097,500

Accounts payable: $ 308,700

Bond interest payable: 25,000

Property taxes payable: 7,600

Bonds payable (10%; due in 20x6): 600,000

Common stock: 1,000,000

Retained earnings: 156,200

Total liabilities and stockholders' equity: $ 2,097,500

The controller is now preparing a budget for the first quarter of 20x1. In the process, the following information has been accumulated:

1) Projected sales for December 20x0 are $700,000. Credit sales are typically 80% of totals sales. Helping Hand Corp’s credit experience indicates that 15% of credit sales are collected during the month of sale, and the remainder are collected during the following month.

2) Helping Hand Corp’s cost of goods sold generally runs at 70% of sales. Inventory is purchased on account and 40% of each month’s 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 month’s projected cost of goods sold.

3) The controller has estimated that Helping Hand Corp’s other monthly expenses will be as follows: Sales salaries $ 40,000 Advertising and promotion 35,000 Administrative salaries 37,000 Depreciation 45,000 Interest on bonds 5,000 Property taxes 1,900 In addition, sales commissions run at the rate of 2 percent of sales.

4) The company president has indicated that the company should invest $225,000 in an automated inventory-handling system to control the movement of inventory in the company’s warehouse just after the new year begins. This equipment purchase will be financed primarily from the company’s 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 purchases 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 10 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 that it should be paid off by the end of the first quarter if possible. If the entire loan cannot be paid off, the maximum amount should be paid while maintaining the minimum cash balance.

5) Helping Hand Corp’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 Helping Hand Corp’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 Helping Hand Corp’s master budget for the first quarter of 20x1 by completing the following schedules and statements.

2) Cash receipts budget:

20x1

January February March 1st Quarter

Cash sales

Cash collections from credit sales made during the current month

Cash collections from credit sales made during the preceding month

Total cash receipts